The current round of the Red Sea crisis is the result of a new round of Palestinian-Israeli conflicts, and at the same time promotes the convergence of Palestinian-Israeli contradictions with the confrontation between the United States and Iran. Yemen's Houthi attacks on merchant ships have impacted the stability of the traditional Red Sea route, and transmitted it to other routes through container freight rates and shipping war risks, triggering a chain reaction and leading to global shipping disruption. With the United States and the West attacking Houthi strongholds and deploying additional naval and air forces around the Red Sea, the Houthis are also adjusting their tactics of "breaking up the war at sea" accordingly, so that the Red Sea crisis will develop in the direction of long-term and normalized.
On November 19, 2023, a ship called "Galactic Leader" docked off the port of Hodeidah, Yemen, after being hijacked by Houthi forces in the Red Sea. The Bahamian-flagged vessel is registered with a British company and part of the shares are held by Israelis. The cost of sea freight has skyrocketed.
The Red Sea-Suez Canal is an important shipping route connecting Asia and Europe, with nearly 14% of the world's shipping** passing through the region. In 2023, 22% of the world's containers, 20% of car carriers, 15% of product tankers, and 5% of dry bulk carriers will pass through this channel. Since the Houthi attack on merchant ships passing through the Bab el-Mandeb Strait, the vast majority of shipping companies have chosen to avoid the Red Sea-Suez Canal route. As of late January 2024, there have been more than 35 attacks on shipping vessels in the Red Sea, mostly container ships. Global shipping giants such as Maersk, Hapag-Lloyd, Robinson Global, Hanxin Shipping, Hualun Wilson, Yang Ming Shipping, and Evergreen Shipping have all notified them to stop cargo handling and book new cabins in the Red Sea region, and increase the number of ships that circumnavigate the Cape of Good Hope in Africa.
More than ninety percent of the world's best shipping takes the sea, and the obstruction of shipping directly leads to the imbalance of the global ** chain and triggers a chain reaction. For the container shipping market, circumnavigating the Cape of Good Hope will add $1 million to $2 million in fuel costs per ship, as well as a time cost of more than ten days, making it difficult to estimate the time of arrival, delays and confusion in port liner scheduling. In the case of a large number of cargo ships detouring in a concentrated manner, it also exacerbates the phenomenon of port congestion, resulting in an increase in containers in transit and a slower return of empty containers, which further triggers a shortage of containers. From a mid-December 2023 baseline, the number of container ships passing through the waters of the Red Sea fell by more than 70%. It is estimated that the transit time from East Asia to Europe and from East Asia to the Mediterranean Sea has increased by 26% and 51% respectively, and the transportation time of grain and coal from the Black Sea to East Asia and from the East Coast of the United States to East Asia has increased by 52% to 77% respectively. According to the Nihon Keizai Shimbun, about 47% of toys and 40% of home appliances and apparel shipments on the East Asia-Europe route are being affected by freight rates** and delayed arrivals. In terms of industrial raw materials, 24% of chemicals, 22% of automotive steel plates, 22% of insulated wires and batteries were affected, and some raw materials were difficult to deliver, and the parts factories of large companies such as Tesla and Volvo in Belgium and other places were forced to suspend production. According to the Spanish port of Barcelona, there has been a 10 to 15-day delay in maritime traffic.
Global routes are a game of chess. The blockage of westbound shipping, represented by the Red Sea-Suez Canal, has further exacerbated the already severe congestion of the Panama Canal (the East and West of the United States). Since 2023, the El Niño phenomenon has caused continuous drought in many countries in Latin America, and the Panama Canal Authority has been forced to limit the number of vessels passing through, extending the queuing time through the canal locks from 5 days to 12 days, and the number of queuing vessels has generally increased by 30% to 50%, and a large number of cargo ships have turned to the Suez Canal. After the escalation of the crisis in the Red Sea, some ships were forced to make a "second detour". According to shipping information data monitoring, a liquefied petroleum gas carrier bound for Ningbo, China, has made an 8,000-kilometer detour through the Cape of Good Hope in Africa since it was loaded from Houston in December 2023 to avoid the two major blockages of the Panama Canal and the Red Sea-Suez Canal.
Maritime transport has both commodity and financial attributes. Due to the superposition of transportation costs, insurance costs, time costs, and safety risks, international shipping** continues to rise. According to data from the Shanghai Shipping Exchange, since the outbreak of the Red Sea crisis, the Shanghai container export freight index has been in the air for nine consecutive weeks**, and the freight rate (ocean freight and ocean freight surcharge) on the East Asia-Europe route has exceeded 350% year-on-year**; The East Asia-Mediterranean trade exceeded 250% year-on-year**. Due to the interconnection and influence of the global container liner transportation network, the change in freight rates has made other routes that do not involve the Red Sea waters also be transmitted, and the freight rates of East Asia - West America, East Asia - East America, and East Asia - Southeast Asia are **% and 60% respectively, and some shipping companies have also begun to levy peak season surcharges from China to the northern region of West Africa.
The opposite of the skyrocketing shipping ** is the "desertedness" of the Suez Canal. As the most important route connecting Europe and Asia, under normal conditions, about 12% of the world's ** flows through the Suez Canal every day, and the value of goods transported is nearly 10 billion US dollars. In March 2021, the Panamanian-flagged freighter Ever Given ran aground in the Suez Canal, causing a seven-day disruption to the canal, clogging more than 400 ships and causing billions of dollars in damage. In fiscal year 2022-2023, Egypt received a total of $9.4 billion in toll revenues as the world** returned to prosperity, up from $7 billion in the previous fiscal year. Immediately after the outbreak of the Red Sea crisis, the Suez Canal Authority introduced incentives such as discounts on tolls, but they were not enough to hedge the concerns of shipping operators about the safety of shipping. Since the beginning of 2024, the Suez Canal has shrunk by 30% year-on-year. The Suez Canal Authority expects annual canal revenues to fall to $6 billion, down 36% year-on-year due to the Red Sea crisis.
The West is worried about "reflation".
The impact of the Red Sea crisis on commodities such as oil and gas, food and so on is still relatively limited, but the subsequent changes are worth observing. In the oil and gas sector, data from the U.S. Energy Information Administration shows that the Red Sea route and pipelines along it carried 12% of the world's total seaborne oil** and 8% of the total liquefied natural gas** in the first half of 2023, with about 7 million barrel-day tankers sailing through the Suez Canal to the Bab el-Mandeb Strait. The West had feared that the Houthis' targeting of Western oil tankers would have an impact on oil shipments and trigger "reflation" in the West. In publicly explaining the reasons for the decision to launch a military strike against the Houthis, Biden admitted that inflation was taken into account. But on the whole, the Houthis have chosen very precise targets, basically not targeting ships carrying Saudi, Russian and Qatari oil and gas, nor threatening non-Western oil tankers and shipping interests, and not having a major impact on the stability of international oil prices. In addition, the risk of a premium from the Red Sea crisis to the oil market is lower than expected, driven by factors such as the continued increase in U.S. oil exports, the slowdown in global demand, and the continued easing of U.S. oil export bans on Iran. However, on January 26, the Houthis launched their first attack on a tanker carrying Russian naphtha, also known as chemical light oil. In the field of grain, the global wheat will be abundant in 2024, and the impact of the Red Sea crisis on food prices is currently relatively limited, but shipping** may lengthen the transportation time of wheat and superimpose freight costs**, exacerbating the import pressure of food-insecure countries in East Africa, the Middle East, Asia and other regions.
In the case of the overall surplus of global capacity, 2023 is a downturn year for the international shipping industry, and it is widely expected that the container shipping industry may lose tens of billions of dollars from 2023 to 2024, but the Red Sea crisis has unexpectedly injected a "booster" into the shipping industry. However, from an objective point of view, unlike the "** chain interruption" during the new crown epidemic, the capacity gap of this round of Red Sea crisis is relatively small, which mainly leads to the extension of transportation time and the disorder of capacity structure, and the related impact will gradually weaken with the restoration of smooth shipping channels. But the Red Sea crisis has once again highlighted the fragility of global shipping and upended the preconceived notions of foreign trade. On the one hand, seafarers will further lock in transportation through long-term agreements and free on board (FOB)**; On the other hand, Asia-Europe land corridors such as the China-Europe Railway Express and the "Arabian Land Bridge" to replace the Suez Canal are facing greater strategic opportunities.
"In recent years, the role of drones in geopolitical conflicts in the Middle East has become increasingly prominent. The Houthis, Allah in Lebanon, the Iraqi Popular Mobilization Group and others frequently use drones to attack US military bases. In the current Red Sea crisis, the Houthis used drones to attack Western cargo ships, exposing the risks of civilian ships being transparent about shipping information and not being able to protect against drones. Compared with cruise missiles, UAVs have the characteristics of simple launch preparation, cruise capability and even reconnaissance capability, which is especially suitable for attacking large ships. Despite the U.S. Prosperity Guardian escort operation and the deployment of additional destroyers in the Red Sea, civilian vessels are still defenseless against drones.
On January 12, the United States and Britain launched large-scale air strikes against the Houthis, striking 60 targets, including command posts, ammunition depots, launch systems, production facilities, and air defense radars. The U.S. and British air strikes have had a certain impact on the Houthis' ability to launch missile strikes, but they have also caused the Houthis to expand their targets to all targets involving "U.S. and British shipping interests," which has created a "broken window effect" and further spilled over security risks. Ajri, a member of the Houthi Politburo, threatened that "we don't have to target whether the ship is heading for Israel, as long as it is an American ship." Since mid-January, the Houthis have reduced the frequency of missile attacks on the United States and the West, but have correspondingly increased the frequency of drone attacks on American and Western merchant ships, and many Western cargo ships have been attacked. On the other hand, the Houthis may have selected targets based on publicly available shipping information platforms, and accidental attacks cannot be ruled out.
The Red Sea crisis highlights the special impact of shipping war risks, which has a "counterproductive" effect on Israel and the West. Israel is highly dependent on sea freight, which accounts for 99 percent of its total imports, 30 percent of which pass through the Red Sea. Since the Red Sea crisis, the Houthis have repeatedly launched missiles at Israel and attacked Israeli vessels, with the intention of sabotaging Israel's use of the port of Eilat, the only import and export seaport in the Red Sea, and undermining Israel's strategic security. Although the Houthis have not been able to cut off Israel's maritime **, they have also achieved the effect of imposing "maritime sanctions" on Israel through shipping war risks and other means.
Marine insurance is an essential part of marine cargo**. Cargo insurance, hull insurance, and P&I insurance are the three main types of international maritime insurance, and war insurance is a special additional insurance that mainly covers war and conflict at sea. Headquartered in London, the International P&I Club Group has an absolute advantage in the field of ship insurance, serving more than 90% of the gross tonnage of ocean-going vessels and more than 95% of the gross tonnage of tanker ships in the world. After the outbreak of the Ukraine crisis, the West launched a "price limit order" on Russian seaborne oil exports by virtue of its absolute monopoly in the field of marine insurance. After the Red Sea crisis, because the Houthis linked the attack on ships to the Palestinian-Israeli conflict, Western insurance companies suspended the insurance coverage of Israeli merchant ships, and a few shipping companies greatly increased the war risk surcharge, causing the Israel-related routes to soar more than 10 times. After the U.S. and British air raids, Western insurance companies suspended war insurance coverage for U.S. and British merchant ships sailing the southern part of the Red Sea. After accounting, shipowners and charterers found that the overall cost of detouring the Cape of Good Hope was lower than paying Suez Canal tolls and Red Sea insurance premiums, which objectively became a "reverse lever" for the Houthis to balance Western shipping.