Red Sea Conflict Causes Shipping Route Disruptions: Impact on Global Trade and Economy

2023-12-20 13:13:52

According to foreign media reports on Wednesday (20th), as the United States considers how to respond to the latest threat to the global economy, more than 100 container ships are sailing long-distance routes around Africa to avoid violent conflicts in the Red Sea, but the move has caused additional transportation Cost and delivery time delays.

According to logistics giant Kuehne+Nagel, 103 container ships are detouring from the Red Sea to Africa. Companies are also considering rail and air routes as waterways, which account for 12% of global trade, are too dangerous to navigate.

An attack by Yemen’s Huthi rebels on a merchant ship represents an escalation in the war between Israel and Hamas, but it is not what most analysts expected. The youth movement is acting in support of Hamas — initially targeting vessels linked to Israel — while the United States and its allies consider how best to respond without exacerbating violence.

While Washington is trying to reach a consensus on a suitable solution, one option is to strike at Yemen, cargo owners are bracing for weeks of disrupted shipping routes. Insurance premiums for crossing the Red Sea are soaring, freight rates and oil prices are also rising, all of which are potential factors that will exacerbate inflation and are quite detrimental to the Federal Reserve (Fed), which currently has the upper hand in controlling inflation.

Toby Vallance, executive committee member of the London Insurance Lawyers Forum, noted that higher premiums and a detour to Africa would have a knock-on effect on commodity prices.

In addition, the United States and its allies are forming a new task force to deal with the Iran-backed Youth Movement, although it is unclear when the task force will take effect.

According to people familiar with the matter, the United States and its allies are also considering possible military strikes, but diplomacy is still the first choice at present. Some countries, including Saudi Arabia, which borders Yemen, worry that the air strikes will anger the “Youth Movement” group, which has a powerful ballistic missile arsenal, and make it more aggressive.

Shippers worry that even some solutions will bring their own problems. For example, switching to land transportation means delays.

“This will slow down trade because we have to wait for convoys to pass,” Euronav NV CEO Alexander Saverys said in an interview with foreign media. The tanker giant has stopped shipping through the Red Sea unless there is such a military escort. Return to the original route.

Foreign media analysis pointed out that these attacks may cause a more serious and long-lasting shipping emergency than the closure of the Suez Canal in 2021, when Evergreen Shipping’s Ever Given was stuck for a week, causing global trade to stagnate for months. While the canal was disrupted, another major artery, the Panama Canal, was also slowed down by drought.

Still, the global shipping system is more relaxed than it was when the Changci was in trouble. Some analysts believe that this disruption will only have a modest impact on the economy.

Analysts said in a report: “Most likely, the diversion will mean higher freight costs, especially for those countries most dependent on maritime trade through the Suez Canal, but the impact will be far less than that of the COVID-19 pandemic. period of soaring transportation and energy prices.”

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