Dramatic Decline in Traffic Through Suez Canal - Impending Container Shortage, Egypt Suffers
Global trade routes experience a slump in traffic, potentially leading to price hikes in the future.
The Suez Canal has seen a 39% decrease in ship traffic over the past two months, resulting in a 45% contraction in cargo flow, reported the United Nations Conference on Trade and Development (UNCTAD). Jan Hoffmann, head of trade logistics for UNCTAD, told Reuters that there are currently disruptions on three key global trade routes.
Last month, the Panama Canal observed a 36% reduction in navigation compared to the previous year due to drought-induced low water levels, while grain traffic fell in the Black Sea region because of the Russian-Ukrainian war. Hoffmann warns that this could lead to a surge in shipping costs, which consumers may feel within a year.
Since 2014, Yemen has been embroiled in a civil war, with multiple factions at odds. The Houthi rebels, supported by Iran, represent an alliance of tribes and militias following the Zaidi sect within Islam. The Houthis control the western coastline of the country, including the capital. Despite controlling more territory, the internationally recognized government oversees areas where 80% of the population resides under Houthi rule.
Post-October 7, the Houthi leadership in Yemen has launched attacks against Israel, mainly targeting the Red Sea resort city of Eilat with drones and missiles. The rebels justify their operations as acts of solidarity with Palestinians and warn that every ship heading towards the Jewish state will be a target as long as the Gaza Strip, still under Israeli blockade, lacks access to food and medical supplies.
Since November, several commercial ships have been seized or attacked, with the assault on the Galaxy Leader being publicly documented. In response, various shipping companies have announced plans to avoid the Red Sea one of the world's most crucial trade routes. The Bab-el-Mandeb Strait near the coast of Yemen serves as a vital chokepoint, as important as the northern entry point, the Suez Canal.
Naturally, longer routes lead to greater costs, which carriers pass on to their clients. The world's largest shipping company, MSC, has already disclosed its price hike for the second half of January: the cost of transporting a standard container to the US West Coast now stands at $5,000, while shipping to the East Coast is priced at $7,300.
Egypt, which oversees the Canal traffic, bills $500,000 - $600,000 per passage and endures significant financial losses at a time when its other main source of income tourism is also diminished due to the global health crisis. Numerous companies, including Chinese automaker Geely and Swedish furniture retailer IKEA, have issued warnings about delivery delays.
Logistics firms also highlight the imminent threat of a container shortage, unprecedented since the onset of the coronavirus pandemic. Due to delays in shipping, containers are not available where they need to be for instance, not returning in time from Europe to Asian manufacturing hubs.
The crisis has not gone unnoticed by world powers; the United States and the United Kingdom have struck Houthi targets in Yemen several times in recent weeks. It is important to note that a decade ago, a multinational coalition easily defeated the infamous Somali pirates, with the West planning a similar strategy against the Yemeni Houthis.
However, instead of pirates, a well-equipped military force of 100-120 thousand supported by Iran poses challenges. If Washington manages to push back the Houthis, it may inadvertently benefit an old rival: Beijing does not spend massive amounts securing one of the world's most vital trade routes. Yet, it might be China that ultimately resolves the crisis.
ADRIATIC PORTS: THE BIGGEST LOSERS OF THE RED SEA CRISIS
Due to Houthi attacks, more and more cargo ships now circumnavigate Africa to reach Europe instead of passing through the Suez Canal. Some container carriers, seeking cost reductions, are directing their vessels toward Western European ports rather than their original destinations. The situation severely impacts Adriatic ports. However, the silver lining is that natural gas supply is not under threat.
Last month, the Panama Canal observed a 36% reduction in navigation compared to the previous year due to drought-induced low water levels, while grain traffic fell in the Black Sea region because of the Russian-Ukrainian war. Hoffmann warns that this could lead to a surge in shipping costs, which consumers may feel within a year.
Since 2014, Yemen has been embroiled in a civil war, with multiple factions at odds. The Houthi rebels, supported by Iran, represent an alliance of tribes and militias following the Zaidi sect within Islam. The Houthis control the western coastline of the country, including the capital. Despite controlling more territory, the internationally recognized government oversees areas where 80% of the population resides under Houthi rule.
Post-October 7, the Houthi leadership in Yemen has launched attacks against Israel, mainly targeting the Red Sea resort city of Eilat with drones and missiles. The rebels justify their operations as acts of solidarity with Palestinians and warn that every ship heading towards the Jewish state will be a target as long as the Gaza Strip, still under Israeli blockade, lacks access to food and medical supplies.
Since November, several commercial ships have been seized or attacked, with the assault on the Galaxy Leader being publicly documented. In response, various shipping companies have announced plans to avoid the Red Sea one of the world's most crucial trade routes. The Bab-el-Mandeb Strait near the coast of Yemen serves as a vital chokepoint, as important as the northern entry point, the Suez Canal.
Naturally, longer routes lead to greater costs, which carriers pass on to their clients. The world's largest shipping company, MSC, has already disclosed its price hike for the second half of January: the cost of transporting a standard container to the US West Coast now stands at $5,000, while shipping to the East Coast is priced at $7,300.
Egypt, which oversees the Canal traffic, bills $500,000 - $600,000 per passage and endures significant financial losses at a time when its other main source of income tourism is also diminished due to the global health crisis. Numerous companies, including Chinese automaker Geely and Swedish furniture retailer IKEA, have issued warnings about delivery delays.
Logistics firms also highlight the imminent threat of a container shortage, unprecedented since the onset of the coronavirus pandemic. Due to delays in shipping, containers are not available where they need to be for instance, not returning in time from Europe to Asian manufacturing hubs.
The crisis has not gone unnoticed by world powers; the United States and the United Kingdom have struck Houthi targets in Yemen several times in recent weeks. It is important to note that a decade ago, a multinational coalition easily defeated the infamous Somali pirates, with the West planning a similar strategy against the Yemeni Houthis.
However, instead of pirates, a well-equipped military force of 100-120 thousand supported by Iran poses challenges. If Washington manages to push back the Houthis, it may inadvertently benefit an old rival: Beijing does not spend massive amounts securing one of the world's most vital trade routes. Yet, it might be China that ultimately resolves the crisis.
ADRIATIC PORTS: THE BIGGEST LOSERS OF THE RED SEA CRISIS
Due to Houthi attacks, more and more cargo ships now circumnavigate Africa to reach Europe instead of passing through the Suez Canal. Some container carriers, seeking cost reductions, are directing their vessels toward Western European ports rather than their original destinations. The situation severely impacts Adriatic ports. However, the silver lining is that natural gas supply is not under threat.
