Red Sea attacks spark shipping disruptions, pose inflation risk

  • Industry News
  • Dec 25,23
Following the assault by Iran-backed Houthi militants on commercial vessels in the Red Sea, shipping companies are redirecting their cargoes, opting to sail around Africa instead of using the Suez Canal's shorter route.
Red Sea attacks spark shipping disruptions, pose inflation risk

Attacks in the Red Sea tied to the Israel-Hamas conflict are causing disruptions to shipping, leading to potential shipping delays and increased prices for goods. Following the assault by Iran-backed Houthi militants on commercial vessels in the Red Sea, shipping companies are redirecting their cargoes, opting to sail around Africa instead of using the Suez Canal's shorter route.

Bloomberg Economics analysts, including Gerard DiPippo, noted in a report that this rerouting will result in elevated shipping costs and longer delivery times. The Red Sea is a crucial global shipping lane, handling about 14% of the world's maritime trade. Economies most affected by these disruptions include Greece, Jordan, Sri Lanka, and Bulgaria, according to the analysts.

Over 20% of containers passing through the Suez Canal transport goods from Asia to European and Mediterranean nations, project44, a logistics intelligence firm, reported. The diversion around Africa is expected to add a minimum of seven to 10 days to the journey.

Despite the challenges, Bloomberg Economics suggests that the economic impact may be moderate. While shipping costs have risen since the end of October, they remain below the levels observed in 2021 and 2022 during the pandemic.

The impact on inflation in Europe is anticipated to be limited, as markets and shipping companies adapt to the new situation. Although Chinese exports have been weak, potential disruptions could exert downward pressure on that trade.

To address the security concerns, the US has established a task force, with the participation of countries such as the UK, Bahrain, Canada, France, and Italy. However, countries like Japan and China, which have military bases near the Red Sea, have not committed to participating in the naval effort.

Bloomberg Economics analysts acknowledge that the best-case scenario may involve shipping diversions for several months until the security situation in the Red Sea stabilises. While not the optimal situation, it is considered preferable given the current shipping capacity and potential alternatives.

Source: Bloomberg

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