How the Houthi attacks affect shipping

The access route through the Red Sea to the Suez Canal is dangerous and shipping companies are forced to take detours. This has an impact on global trade and for consumers in Germany.

The Suez Canal is considered the gateway to Europe. Shipping companies transport a large proportion of goods to and from Asia through it, usually thousands of tons every day. However, many are now avoiding the important sea route after Houthi militias from Yemen repeatedly attacked merchant ships there with drones and missiles in recent weeks.

The attacks are directly linked to the war in the Gaza Strip. Houthi rebels are showing solidarity with the radical Islamist Hamas fighters. At the beginning of December, they announced that they would attack all ships bound for Israel that were not delivering aid to Gaza. Shipping through the Red Sea has now become dangerous for all container ships. They are therefore taking detours - and this has a significant impact on global trade and for consumers in Germany.

The attacks are fostering "a global supply chain problem that the weak global economy really doesn't need at the moment", says Henning Gloystein from the consultancy Eurasia Group. "If several large container ships that are currently being rerouted had scheduled deliveries in Germany, this could lead to short-term but noticeable supply bottlenecks around the turn of the year and in January."

All kinds of goods are transported through the Suez Canal: Food, medicines, grain, but also coal, oil and liquid gas. The alternative sea route around the Cape of Good Hope near South Africa takes around two weeks longer, which is why many products arrive later. According to Hamburg-based shipping company Hapag-Lloyd, these include electronic items, cell phones, household goods, sportswear including shoes, as well as solar panels, machines and machine parts. A Hapag-Lloyd spokesperson told "Capital" that the company has suspended sailings through the Red Sea until the end of the year.

Further detour

Huthi rebels fired on the Hapag-Lloyd container ship "Al Jasrah" last Friday. As a consequence, "initially around 25 ships will be rerouted," said the company spokesman. "The route from the eastern Mediterranean to Singapore will increase from 13 to 31 days, and from the east coast of the USA to Singapore from 25 to 31 days."

The affected region in the Red Sea is an enormous shortcut for ships to and from Asia. It is the access route to the Suez Canal near Egypt, one of the world's busiest waterways. Around 60 ships pass through the canal every day, 12 percent of the global freight volume and 30 percent of the container volume is transported along it. The importance of the canal for global trade was underlined by the blockade of the canal in March 2021, when the container ship "Ever Given" from the shipping company Evergreen was stuck there for days. Hundreds of ships had to take a detour and global trade was massively disrupted.

In addition to Hapag-Lloyd, the world's largest shipping companies MSC and Maersk also changed their routes. The MSC freighter "Palatium III" was also attacked last week. "Due to this incident and to protect the lives and safety of our seafarers, MSC ships will not sail eastbound and westbound through the Suez Canal until the passage through the Red Sea is safe," said MSC. Ships will be diverted and instead sail around South Africa via the Cape of Good Hope. Maersk "remains deeply concerned about the situation in the southern Red Sea and the Gulf of Aden," the Danish company writes. "The affected customers will be informed directly about further details."

The alternative routes will result in additional fuel costs for the shipping companies. According to Hapag-Lloyd, these additional costs will amount to "an additional double-digit million amount by the end of the year". So far, the shipping company has been paying this itself. A decision on whether to resume the route through the Red Sea will be made "as soon as the passage has been assessed as safe for our seafarers, our ships and our customers' cargo," said the spokesperson.

USA plans protection mission

Experts expect that other shipping companies will classify the Suez Canal as no longer navigable in the coming days. However, the route through the Red Sea is not yet fundamentally ruled out for them, the German Shipowners' Association (VDV) told "Capital". "The shipping companies are currently deciding whether or not to send their ships through certain sea areas based on current situation reports on an hourly basis," said Irina Haesler. She is responsible for maritime security issues at the VDV and recently described the situation as "delicate" in an interview with"Capital". This is because the Houthi rebels are mainly attacking from the air, against which the ships are usually unable to defend themselves.

In order to make the passage navigable again, the USA and other countries are now planning a protection mission in the region. According to the US Department of Defense, the countries participating in "Operation Prosperity Guardian" include the UK, Bahrain, Canada, France, Italy, Norway, Spain, the Netherlands and the Seychelles. Some of them are to protect the neuralgic sea routes with patrols, while others will deploy their intelligence services in the southern Red Sea and the Gulf of Aden.

The VDV welcomes these plans. "This is a positive signal to shipping companies that the risk to seafarers, ships and cargo when passing through the Red Sea could be reduced," says Haesler. "This will also have a positive effect on the functioning of supply chains." Maersk, for its part, intends to stick to the alternative routes for the time being. In the meantime, the rerouting of ships via the Cape of Good Hope will "lead to faster and more predictable results for our customers and their supply chains", according to the shipping company.

Gas price increases possible

According to Maersk, around 20 ships had to cancel their crossings by yesterday, Tuesday. Half of them are now east of the Gulf of Aden, the others south of Suez in the Red Sea or north of Suez in the Mediterranean. However, according to Hapag-Lloyd, a traffic jam has not formed. "There is an accumulation of ships, but I wouldn't call it a congestion," said a Hapag-Lloyd spokesperson. The ships are currently in very different positions in the Red Sea.

Experts do not expect supply bottlenecks like two years ago anyway. The supply chains have normalized in the meantime, says Vincent Stamer from the Kiel Institute for the World Economy (IfW Kiel) to Capital. In addition, there are no longer any lockdowns that disrupt production. "Consumers do not have to fear any major price jumps for goods," says Stamer when asked. The transportation costs from Asia to Europe amount to a maximum of two percent of the value of the goods - even for the cheapest items. "For expensive goods such as electronics, they don't even matter. A moderate increase in transportation costs should therefore not significantly fuel inflation."

Experts also tend to give the all-clear when it comes to oil prices: large companies can compensate for delays with deliveries from other regions or from stockpiles, according to consultant Gloystein from the Eurasia Group. "That's why we haven't seen any big jumps in oil prices so far. But if there are pictures of a large oil tanker on fire, that could change." British Petroleum (BP) was the first oil company to stop all oil shipments through the Red Sea on Monday, citing a "deteriorating security situation". BP stated that it would "review this precautionary pause on an ongoing basis as circumstances in the region develop". However, the international reference price for Brent crude oil only reacted to this with a slight increase of 1.8 percent to USD 77.95 per barrel.

Gas, on the other hand, could well become more expensive. The British reference price shot up by up to 14% in the meantime, while the European price rose by almost 13%. Europe is dependent on liquid gas supplies from the Middle East, especially from Qatar, which is considered an important mediator in the region. Gloystein therefore does not necessarily expect attacks on LNG tankers, but this is where he sees the greatest risk for Europe. Even if the European gas markets are well equipped for the winter, unplanned outages could cause prices to rise sharply.

This text first appeared on capital.de