Trade in the Red Sea has significantly reduced ever since the start of the Houthi conflict and could still be several months away from returning to normal levels.
ADVERTISEMENTGlobal maritime trade has been facing a major setback from the increasing attacks on the Red Sea, halving the number of containers shipped in the area in December and leaving a serious impact on global trade in recent months.
The Red Sea conflict, mainly driven by the Iran-backed Yemeni Houthi rebels protesting at Israel’s actions in Gaza, is continuing to heat up, with several more attacks on commercial ships from various countries.
A number of shipping companies, such as Maersk, MSC and Hapag-Lloyd have temporarily halted sending their shipping containers through the conflict zone, requiring vessels to take long and costly detours around South Africa.
Vincent Clerc CEO of Danish shipping giant Maersk told the Financial Times the disruptions could last for months, and could even further inflame global inflation.
"It's unclear to us if we are talking about re-establishing safe passage into the Red Sea in a matter of days, weeks or months…It could potentially have quite significant consequences on global growth," said Clerc.
Supermarket chains such as Tesco, have already issued warnings that the Red Sea conflict could cause price increases for certain items.
Maersk, which carries one-fifth of the global maritime freight, had an attempt at restarting trips after a US-led military coalition tried to create a safe passage in the region but was forced to divert its ships again after a further attack at the end of December.
US and UK retaliate against Houthi attacks
Recently, the UK and US launched air strikes on Houthi targets in Yemen, targeting more than a dozen sites so far, including missile and drone facilities.
Oil prices reacted sharply to these strikes, with European benchmark Brent crude oil jumping more than 3% on Friday afternoon, surpassing $80 per barrel on ICE Futures Europe. West Texas Intermediate crude also rose more than 3% to more than $75 per barrel.
According to UK Prime Minister Rishi Sunak: "The United Kingdom will always stand up for freedom of navigation and the free flow of trade. We have therefore taken limited, necessary and proportionate action in self-defence."
US President Joe Biden highlighted: "These targeted strikes are a clear message that the United States and our partners will not tolerate attacks on our personnel or allow hostile actors to imperil freedom of navigation in one of the world’s most critical commercial routes."
Global trade significantly disrupted by Red Sea attacks
A new report by the Kiel Institute for the World Economy outlined that global trade in the Red Sea fell almost 1.3% between November and December, due to the Houthi attacks. The number of containers usually travelling in the area dropped by nearly 70%.
This has led to significant increases in transportation time and freight costs between East Asia and Europe, as several containers need to find alternative routes, often as far as going around the African continent.
Several countries have also taken hits to their imports and exports, with Germany seeing a 1.9% drop in exports and a 1.8% fall in imports. The European Union saw a 2% slide in exports and a 3.1% reduction in imports. The US saw a 1.5% decrease in exports and a 1% slip in imports, although the country is somewhat less dependent on the Suez Canal and Red Sea than the EU.
China, on the other hand, no doubt stepping into the vacuum, saw a 1.3% rise in exports and a 3.1% jump in imports. However, this could also be due to an annual cyclical trend before the Chinese Lunar New Year.
