The two major shipping "arteries" have been blocked, and the four major shipping giants have announced the suspension of sailing, will the transportation cost rise sharply?

Edited by: Bi Luming

After a number of attacks, the risk of shipping in the Red Sea has intensified, and the Suez Canal, the "main artery" of shipping, is at risk of closing, and the international shipping industry is facing huge challenges, and the global supply chain may be affected.

According to a report by Xinhua News Agency on December 17, four international shipping companies have announced the suspension of navigation in the Red Sea in recent days due to the Houthi attacks on a number of ships traveling to the Red Sea waters. Hapag-Lloyd, the owner of the "Jesla" and a German shipping company, announced on the 15th that it would suspend all container ship transportation through the Red Sea from now until the 18th. Denmark's Maersk Line Group also announced on the same day that it would suspend all container ship transportation through the Bab el-Mandeb Strait and the Red Sea. Mediterranean Shipping Company and France's CMA CGM Group asked their cargo ships to suspend navigation in the Red Sea on the 16th and avoid the Suez Canal route.

On November 20, a Hapag-Lloyd container ship. Image source: Xinhua News Agency

The reason why the shipping giants made these decisions at the same time is related to the tense maritime security situation in the Red Sea region.

Yemen's Houthis issued a statement on the 15th, saying that the group fired missiles at the container ships "Alaniya" and "Paratiyum 3" bound for Israel. The Houthis will continue to block all ships heading to Israel until supplies for the people of the Gaza Strip arrive, the statement said.

According to the U.S. Central Command, the Houthis fired two ballistic missiles in the attack, one of which hit the Liberian-flagged container ship Paratyum 3 in the Bab el-Mandeb Strait. The "Alania" headed north in the southern part of the Red Sea on the 15th, and the Houthis threatened to attack the ship and asked it to turn around and sail south. In another attack on the same day, a Houthi drone hit the Liberian-flagged ship Jasra in the Bab el-Mandeb Strait in the southern Red Sea.

Strategically located between the Atlantic and Indian Oceans via the Suez Canal and the Gulf of Aden via the Suez Canal and the Gulf of Aden via the Bab el-Mandeb Strait, the Red Sea is one of the world's busiest shipping routes. According to public data, 12% of the world's trade and transportation pass through the Red Sea region.

According to Jiemian News on December 17, citing the shipping media "Xinde Maritime", after Maersk and Hapag-Lloyd announced the above-mentioned suspension decision, ships that were originally going to pass through these routes need to reformulate their routes. According to a report by Sindh Maritime, a number of ships have made an emergency U-turn before reaching the Bab el-Mandeb Strait, and if the ship is diverted to the Cape of Good Hope in Africa, long-distance voyages will significantly reduce market capacity, the number of days of shipping will increase, and the cost of transportation will also rise sharply.

The industry is concerned that if the situation in the region deteriorates further, the detour or blanking of ships will have a significant impact on the global supply chain. At the beginning of the month, Linerlytica, an analyst of the container market, released a report saying that the increased probability of attacks on ships in the Red Sea could lead to the diversion of 30% of the container fleet.

Analysts at Norwegian analyst agency Xeneta expect ocean freight rates to rise by as much as 100%, depending on the size and duration of the disruption to the Suez Canal route.

Since the outbreak of the new Palestinian-Israeli conflict, the Houthis have repeatedly attacked targets in the Red Sea waters using missiles and drones. According to the US Central Command, "the actions of the Houthis pose a significant risk to international shipping." Analysts believe that if tensions in and around the Red Sea intensify and international shipping continues to be disrupted, it will be difficult to avoid shocks to international supply chains. According to the analysis, the Houthi attacks on international shipping will increase the cost of cargo transportation security, thereby raising the price of goods.

This is an Israeli Iron Dome air defense system attempting to intercept rockets in Jerusalem on the evening of December 15 (video screenshot). Image source: Xinhua News Agency

In addition to attacks on maritime targets, Yemen's Houthi rebels are constantly launching long-range strikes inside Israel. Ahmed Rafiq Awad, a professor at Al-Quds University in Palestine, noted that armed groups in Yemen, Lebanon and Iraq are becoming increasingly involved in the conflict. "The Houthi attack on merchant ships in the Red Sea has raised concerns in the United States and other Western countries, and Israel's intention to join forces with other countries to cruise the Red Sea, raising the risk of conflict spillover. According to an article in the Financial Times, the most dangerous scenario would be the outbreak of a full-scale war in the region, involving both the countries of the region and the United States.

At the same time, the Panama Canal, another major shipping artery of global shipping, is still facing navigation difficulties due to drought, and many ships have to choose to detour. According to data released by the Panama Canal Authority (ACP), the number of ships passing through the canal in November was 783, down 22% from October, and further reductions are expected in December and January 2024.

In order to give priority to the passage of the Panama Canal, there are even companies that bid for the right to give priority transit through the Panama Canal for nearly $4 million. Under the Panama Canal's fees, the company also had to pay hundreds of thousands of dollars in regular transportation fees.

In the face of the current situation of Red Sea shipping and the Panama Canal, the industry is worried that global shipping will change significantly. This could lead to a reduction in capacity to the market, a significant increase in shipping costs, and a disruption to the global shipping industry that could compromise supply chain stability.

With the advent of Christmas, the transportation has entered the peak season, and the shipping companies have recently increased freight rates through various channels, and the freight rates in the current shipping market have shown a significant upward trend. According to data released by the Shanghai Shipping Exchange on December 16, the current market freight rates of European and American routes have risen, driving the composite index to rise. On December 15, the Shanghai Export Container Comprehensive Freight Index released by the Shanghai Shipping Exchange was 1093.52 points, up 5.9% from the previous period, of which European routes and North American routes increased the most.

The daily economic news integrates Xinhua News Agency and Jiemian News