Red Sea Crisis Crosses 150-Day Mark; Suez Canal Avoidance Continues to Disrupt Global Trade

Since the onset of the Red Sea crisis over 150 days ago, commercial vessels have been steering clear of the critical Suez Canal, opting instead for the longer route via the Cape of Good Hope in southern Africa to evade attacks by Houthi rebels in Yemen. This diversion has taken a toll on trade, causing delays in shipments to Europe and the US, while sea freight costs have steadily risen. For example, sea freight from India to Europe and the US has surged by over $1,000 per container in recent months, while air freight rates have more than doubled.

With nearly 90 percent of global trade relying on sea routes, the Red Sea’s significance cannot be overstated. The Suez Canal, a vital link connecting Asia and Europe, typically handles around 12 percent of global trade, facilitating the transportation of a wide array of goods, including electronics, machinery, oil, gas, and automobiles.

Over the past three months, Houthi rebels have targeted ships in the Bab el-Mandeb strait, further exacerbating disruptions in the Red Sea. This disruption is putting pressure on the global supply chain, as inventory levels in consumer markets dwindle rapidly.

In the coming months, suppliers in India are expected to face increasing demands for timely delivery. Effective supply chain management strategies will be crucial to navigate these challenges, according to a logistics official at a prominent leather company in Chennai.

Currently, delays in shipping cargo to Europe or the US are averaging around 20 days due to the diversion via the Cape of Good Hope. However, prolonged delays could lead to heightened pressure from clients to meet delivery deadlines.

Many clients operate on a Fee-on-board basis, handling logistics and freight costs. While this may provide short-term relief for suppliers, clients may seek to offset additional costs by negotiating lower prices in the future.

Suppliers operating on a Cost, Insurance, and Freight basis are facing mounting pressure to absorb increased freight costs and ensure timely delivery. However, clients are reluctant to bear these additional expenses, placing further strain on suppliers.

The United Nations Conference on Trade and Development (UNCTAD) reports a significant decrease of 42% in ship transiting through the Suez Canal, with major players in the shipping industry suspending Suez transits temporarily. This has resulted in a sharp decline in container ship transits, carrying capacity, tanker transits, and gas carriers.

Spot freight rates have surged to unprecedented levels since November 2023, with container shipping rates more than doubling from Shanghai to Europe and tripling to the US West Coast. Despite bypassing the Suez Canal, these rates remain elevated.

Amidst the crisis, reports suggest that Russia and China are engaging in talks with Houthi rebels to facilitate the passage of their ships through the Red Sea. However, industry experts, such as Lars Jensen from Denmark, highlight continued risks in the region, prompting shipping giant Maersk to maintain its route around Africa until sustainable changes occur.

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