Major shippers are avoiding the Suez Canal and the Red Sea for now. This is the latest set of supply chain disruptions caused by international conflicts.
The Threat
Houthi attacks are the primary reason for choosing another route. The Houthi movement, based in Yemen and supported by Iran, has been increasing its attacks on commercial vessels in the Red Sea since 2019. These attacks include drones, rockets, and missiles, posing a significant danger to crew and cargo. In recent months, attacks in the Red Sea have escalated, supposedly in support of Hamas in their conflict with Israel.
The Houthi rebels also control the Bab al-Mandab strait, a strategic chokepoint connecting the Red Sea with the Gulf of Aden and the Indian Ocean. This gives them further leverage to disrupt shipping traffic.
The Concerns
The primary concern for shippers is the safety of their crews and vessels. Even a minimal risk of an attack is enough to deter many companies from entering the region.
Increased risk of attack leads to higher insurance premiums for vessels transiting the Red Sea.These additional costs can significantly impact shipping companies’ profits, whether a ship is actually attacked or not.
Even if a vessel avoids direct attack, the threat of Houthi activity can lead to delays due to rerouting, security checks, or temporary closures of ports. These disruptions can impact delivery schedules and add further costs.
The Alternatives
Many shippers are opting to reroute their vessels around the Cape of Good Hope at the southern tip of Africa. This adds several days to the journey but is considered a safer and more predictable option. CMA CGM, a French shipping company, rerouted some ships around the Cape. Other ships, which were already en route through the Red Sea, have been instructed to find safe haven until further notice.
Some companies are exploring alternative routes, such as the Suez Canal bypass channel or the SUMED pipeline, which avoid the Bab al-Mandab strait but still carry risks and logistical challenges.
The Impact
The disruption of shipping through the Red Sea and Suez Canal can have a significant impact on global trade, potentially leading to higher prices for consumers and businesses.
Countries heavily reliant on trade through the Red Sea are facing economic uncertainty due to the decreased shipping activity. Some companies, including Evergreen, based in Taiwan, have stopped accepting cargo from Israel.