How Houthi attacks on ships in Red Sea affect global trade

The USS Mason passes a dock in Norfolk, Va.

By COURTNEY BONNELL

Associated Press

Dec. 22, 2023 10:41 AM PT

LONDON — The attacks on commercial ships in the Red Sea by Yemen’s Houthi rebels have rerouted a majority of global trade away from the crucial maritime artery for consumer goods and energy supplies, a shift expected to trigger delays and rising prices.

Oil, natural gas, grain and goods as diverse as toys and electronics typically travel through the waterway separating Africa and the Arabian Peninsula en route to the Suez Canal, where 12% of the world’s trade passes.

Some of the world’s largest container shipping companies and oil giant BP are sending vessels on longer journeys that bypass the Red Sea. In response to the growing effect on global trade, the U.S. and a host of other nations have created a new force to protect ships.

Here are things to know about the recent attacks and the impact on global shipping:

Why are Houthis attacking ships?

The Houthis are Iranian-backed rebels who seized Yemen’s capital, Sanaa, in 2014, launching a grinding war against a Saudi-led coalition seeking to restore the government.

The Houthis have sporadically targeted ships in the region, but the attacks have increased since the start of the Israel-Hamas war. They have used drones and anti-ship missiles to attack vessels and in one case used a helicopter to board and seize an Israeli-owned ship and its crew.

They have threatened to attack any vessel they believe is either going to or coming from Israel. That’s now escalated to apparently any vessel, with container ships and oil tankers flagged to countries like Norway and Liberia being attacked or drawing missile fire.

The Houthis also have hailed vessels by radio to try to convince them to change course closer to the territory they control.

Why is the Red Sea important?

The Red Sea has the Suez Canal at its northern end and the narrow Bab el-Mandeb Strait at the southern end leading into the Gulf of Aden. It’s a busy waterway with ships traversing the Suez Canal to bring goods between Asia and Europe and beyond.

In fact, 40% of Asia-Europe trade normally goes through the area, including a huge amount of energy supplies like oil and diesel fuel for import-dependent Europe, said John Stawpert, senior manager of environment and trade for the International Chamber of Shipping, which represents 80% of the world’s commercial fleet.

So do food products like palm oil and grain and anything else brought over on container ships, which is most of the world’s manufactured products.

In all, about 30% of global container traffic and more than 1 million barrels of crude oil per day typically head through the Suez Canal, according to global freight booking platform Freightos Group.

How are Houthi attacks affecting trade?

Huge shipping container companies MSC, Maersk, CMA CGM Group and Hapag-Lloyd, among others, are avoiding the Red Sea and sending their ships around Africa and the Cape of Good Hope. That adds what analysts say could be a week to two weeks to voyages.

Shippers amounting to 62% of global capacity are opting for the longer route, according to Freightos. That’s led the number of vessels moving through the Red Sea to drop by more than 40% in a week, said Project44, a tech company whose platform helps companies track shipments.

London-based BP also that it has “decided to temporarily pause all transits through the Red Sea,” including shipments of oil, liquid natural gas and other energy supplies.

Depending on what companies decide to do, they will have to add more ships to make up the extra time or burn more fuel for the longer journey and if they decide to go faster to meet their itineraries — both of which would release more climate-changing carbon dioxide, said Simon Heaney, senior manager of container research for Drewry, a maritime research consultancy.

“The impact will be longer transit times, more fuel spent, more ships required, potential disruption and delays — at least in the first arrivals in Europe,” he said.

That brings up the cost of shipping, but “I don’t think it’s going to go to the heights that it reached during the pandemic,” Heaney said.

Supply chain disruptions increased as people stuck at home during the COVID-19 pandemic ramped up orders for all sorts of products, driving up consumer prices worldwide.

Stawpert of the shipping chamber said he would expect to see some price increases for consumers in the short term but that it depends how long the security threat lasts.

Project44 foresees higher gasoline prices because if the conflict drags on, a “major disruption to oil is anticipated” and that would push up the cost of crude. Oil prices already have been rising.

The company also expects products could be missing from store shelves after the busy holiday shopping season, with new shipments taking longer to arrive.

However, “one saving grace may be the timing, as December and early January are typically slow, post-holiday season times for ocean freight,” Judah Levine, head of research for Freightos, said in a blog post.

How is the world responding?

U.S. Defense Secretary Lloyd J. Austin III announced a security initiative to protect ships in the Red Sea that includes United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain.

Some of those countries will conduct joint patrols while others provide intelligence support in the southern Red Sea and the nearby Gulf of Aden, Austin said. The goal is to provide ships and other assets to help protect trade in the area.

It builds on the existing presence of U.S. and other coalition warships that patrol to keep the waterway open. The Houthis have no formal naval warships to use to impose a cordon, relying on harassing fire and only one helicopter-borne assault so far.

Meanwhile, ships are still moving through the Red Sea, though insurance costs have doubled, which can add hundreds of thousands of dollars to a journey for the most expensive ships, said David Osler, insurance editor for Lloyd’s List Intelligence, which provides analysis for the global maritime industry.

He expects those costs to keep rising.