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Already hampered by problems at the Panama Canal, shipping companies are now steering clear of the Suez Canal to avoid being attacked in the Red Sea.
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By Peter Eavis
The wave of attacks against merchant ships in the Red Sea is forcing companies to send ships on longer routes and threatens to hurt an already wobbly global economy.
The Houthis, an armed group backed by Iran that controls much of northern Yemen, have been using drones and missiles to target ships since Hamas attacked Israel on Oct. 7. That has forced some shipping giants and oil companies to avoid the Suez Canal, a development that could hamper global trade and push up the cost of imported goods.
The Suez is a vital artery for container ships and fuel tankers. Goods and fuel from Asia and the Middle East have made their way to Europe and the United States through the passage since it opened in 1869. Britain and other world powers have fought wars and engaged in geopolitical intrigue over the canal, controlled by Egypt now, for more than a century.
world map of major shipping routes
Shipping routeMajorOther
Arctic Ocean
NETHERLANDS
UNITED
STATES
ISRAEL
CHINA
IRAN
Suez Canal
YEMEN
Red Sea
Atlantic
Ocean
Panama
Canal
Gulf of
Aden
Pacific
Ocean
Indian
Ocean
SINGAPORE
Cape of
Good Hope
Southern Ocean
Arctic Ocean
NETHERLANDS
ISRAEL
IRAN
Suez Canal
YEMEN
Red Sea
Atlantic
Ocean
Panama
Canal
Gulf of Aden
Indian
Ocean
Cape of
Good Hope
Southern Ocean
About 50 vessels go through the Suez Canal a day, and recent data suggested that, as of Monday, at least 32 had been diverted, said Chris Rogers, head of supply chain research at S&P Global Market Intelligence. He noted that nearly 15 percent of European imports were transported by sea from Asia and the Persian Gulf, most of which go through the Suez.
Peter Sand, chief analyst at Xeneta, a shipping market analytics company, described the problems in the Red Sea and the canal as “a slow-burning disaster that really blew up on the weekend.” He added, “Everybody involved in global shipping, especially with supply chains connected by the Suez Canal, is trying to find out where their goods are, where they are heading.”
U.S. Defense Secretary Lloyd J. Austin III on Monday announced a new multinational force that would seek “to jointly address security challenges in the southern Red Sea and the Gulf of Aden, with the goal of ensuring freedom of navigation for all countries and bolstering regional security and prosperity.”
Map locates the Suez Canal in Egypt, the Red Sea, Yemen and surrounding countries.
Israel
Iraq
west
bank
gaza
strip
Jordan
Suez
Canal
Egypt
Riyadh
Saudi
Arabia
Sudan
Red
Sea
Yemen
Khartoum
Eritrea
Sana
200 miles
Ethiopia
Gulf of Aden
The joint effort, which will include the armed forces of the United States, Britain, Bahrain, Canada and France, was announced after a U.S. warship on Saturday brought down 14 drones launched from Houthi-controlled territory.
On Monday, BP, the oil company, said it was suspending shipments through the Suez Canal, citing the “deteriorating security situation for shipping.”
The companies that transport products like toys and electronics from Asia in vast container ships have also said they will stop sending vessels into the area. A ship belonging to one of those companies, Maersk, was attacked last week.
Maersk said on Tuesday that all of its ships bound for the Red Sea would be rerouted around Africa via the Cape of Good Hope “to ensure the safety of our crew, vessels and customers’ cargo onboard.” Until it was safer to use the route, the detour around Africa would be “a faster and more predictable outcome for customers and their supply chains.”
The instability near the Suez Canal comes at a time when a drought has forced the operators of the Panama Canal, another critical link in global supply chains, to slash the number of vessels that can use that waterway.
Some 12 percent of world trade goes through the Suez Canal, and 5 percent through the Panama Canal. When shipping companies avoid the canals, they often must spend millions of dollars more on fuel for ships to take longer routes.
Sailing from Asia to Europe via the Cape of Good Hope instead of the Suez Canal is a diversion that would lengthen the journey from Singapore to Rotterdam in the Netherlands by 3,300 miles, or nearly 40 percent.
Mr. Sand said taking the Cape of Good Hope route could add roughly $1 million, or around a third, to the cost of a round trip from Asia to Europe. He added that some shipping rates had risen 20 percent in recent days.
A portion of that additional cost could be passed on to consumers just as inflation is slowing in the United States and Europe.
The attacks have already appeared to push up the price of oil. Brent crude, the international oil benchmark, has risen about 8 percent over the past week.
The economic impact has increased the pressure on the United States and other countries to stop the attacks by the Houthis. Shipping executives said such force was necessary.
“If you closed down the Suez Canal, it would have some huge ripple effects,” said Oystein Kalleklev, the chief executive of Avance Gas, which transports propane from the United States to Asia. “So, we will think that there will be sufficient naval ships in order to stabilize the situation.”
Just over two years ago, the Suez Canal was the source of another supply chain scare. One of the largest container ships ever built got stuck for days in the canal, blocking other vessels from using the crossing. That episode occurred when supply chains were overwhelmed by the huge demand for home appliances, electronics and other goods during the pandemic.
By comparison, the current attacks in the Red Sea are happening during a period of relatively slack demand. As a result, Mr. Rogers of S&P said in an email, their effect will be limited “if the disruption lasts days rather than weeks or months.”
The delays at the Panama Canal prompted some shipping companies that transport goods from Asia to the East Coast of the United States to send ships through the Suez Canal instead. But the problems in the Red Sea could now force them to go around the Cape of Good Hope, lengthening those trips even more.
Unlike the Suez Canal, the Panama Canal uses locks, which lift vessels up and down as they cross from one ocean to another. The lack of rain has reduced the amount of water available to fill the locks, and the Panama Canal authority has had to reduce the number of ships using the waterway. That number could fall further because the dry season is just beginning.
“The Panama Canal situation,” Mr. Kalleklev said, won’t be “over anytime soon.”
Peter Eavis reports on business, financial markets, the economy and companies across different sectors. More about Peter Eavis
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As an expert and enthusiast, I can provide information on various topics, including the concepts mentioned in the article you provided. However, I don't have access to the specific content of the article itself. I can provide general information on the concepts mentioned in the article, such as the Suez Canal, the Red Sea attacks, and their potential impact on global trade and the economy.
Suez Canal
The Suez Canal is an artificial sea-level waterway in Egypt that connects the Mediterranean Sea to the Red Sea. It provides a crucial shipping route for goods and fuel between Asia, the Middle East, Europe, and the United States. The canal has been of strategic importance for global trade since its opening in 1869. It allows ships to avoid the longer and more dangerous route around the Cape of Good Hope in South Africa.
Red Sea Attacks
The article mentions that the Houthis, an armed group backed by Iran and controlling much of northern Yemen, have been using drones and missiles to target ships in the Red Sea since Hamas attacked Israel. These attacks have led to concerns among shipping companies, forcing some to avoid the Suez Canal. The attacks have the potential to disrupt global trade and increase the cost of imported goods.
Impact on Global Trade and Economy
The attacks in the Red Sea and the potential diversion of ships away from the Suez Canal can have significant implications for global trade and the economy. The Suez Canal is a vital artery for container ships and fuel tankers, with about 12% of world trade passing through it. If shipping companies avoid the canal, they may have to take longer routes, such as sailing around the Cape of Good Hope, which can increase costs and shipping times.
The disruptions in shipping routes can lead to delays in the delivery of goods, increased transportation costs, and potential inflationary pressures. The article mentions that some shipping rates have already risen by 20% in recent days, and the price of oil has also increased. These factors can have a broader impact on supply chains, consumer prices, and overall economic stability.
Efforts are being made to address the security challenges in the Red Sea and the Gulf of Aden. The article mentions the announcement of a new multinational force, including the armed forces of the United States, Britain, Bahrain, Canada, and France, to ensure freedom of navigation and bolster regional security and prosperity.
Please note that the information provided above is based on general knowledge and context. For specific details and the latest updates on the Israel-Hamas conflict and its impact on shipping and the economy, it is recommended to refer to reliable news sources and official reports.