By Al-Fassel | 2024-01-16

Soaring shipping costs due to Houthi attacks on vessels transiting the Red Sea have impacted global trade and ignited fears of inflation worldwide.

The attacks continued on Monday (January 15) despite retaliatory US and UK strikes on Houthi targets in Yemen last Friday.

About 12% of global trade normally passes through the Red Sea.

Major container shipping firms and oil giant BP have been sending vessels on longer journeys around Africa that bypass the Red Sea, disrupting supply chains and putting upward pressure on inflation.

European Union (EU) economy commissioner Paolo Gentiloni on Monday warned that violence in the Red Sea could push up energy prices and inflation in the bloc.

Gentiloni said that "what is happening in the Red Sea... is not for the moment apparently creating consequences on energy prices and inflation," AFP reported.

"But we think that it should be monitored very closely because these consequences could materialize in the coming weeks," he said.

Analysts at JPMorgan warn that the rise in shipping costs could cause the recent decline in inflation to slacken, AP reported last Friday.

Attacks on US ships

A US-owned cargo ship was hit by a missile off the coast of Yemen on Monday, a British security agency and maritime risk company said, a day after the Houthis fired a cruise missile at a US destroyer.

The United Kingdom Maritime Trade Operations security agency reported a "vessel hit from above by a missile" on its website, without providing further details.

British maritime risk company Ambrey reported that a fire broke out on board the Marshall Islands-flagged, US-owned bulk carrier but that it remained seaworthy and there were no injuries.

The company "assessed the attack to have targeted US interests in response to US military strikes on Houthi military positions in Yemen," Ambrey said.

The latest attack comes as the US military on Sunday shot down a cruise missile fired at a US warship from Houthi-controlled areas of Yemen in what appeared to be the group's first direct attack on a US destroyer.

Iran was "deeply involved" in the Houthi attacks, said Washington -- a claim Tehran has denied.

"These attacks have been aided and abetted by Iran with technology, equipment, intelligence, information; and they are having a real-life impact on people," US Secretary of State Antony Blinken said on January 10.

British Foreign Secretary David Cameron has accused Iran of being a "malign actor in the region."

Longer wait, higher cost

Since mid-November, the volume of shipping containers transiting through the Red Sea has dropped by 70%, according to maritime analysts.

Danish tanker firm Torm on Friday became the latest firm to halt all transit through the southern Red Sea until further notice.

The Danish company owns a fleet of about 80 vessels and specializes in the transportation of petroleum products.

Rerouting around the tip of Africa has caused delays that contributed to a 1.3% decline in world trade in December, according to AP.

Vessels are circumnavigating Africa by way of the Cape of Good Hope, which extends the journey between Asia and Europe by 10 to 20 days on average, said Arthur Barillas, general manager of Ovrsea, a freight organizing company.

Shipping companies have already announced significant price increases to cover the costs associated with the detour.

French shipping group CMA CGM has doubled the rate for transporting a 40-foot (12-meter)-long container between Asia and the Mediterranean Sea to $6,000.

Italian-Swiss peer and sector leader MSC has hiked its rate to $5,900 from $2,900 for the same offering.

"Services will continue to have to run late and with longer transit times in the short term," Jonathan Roach, a container shipping analyst at Braemar, a London-based shipping advisory firm, told the Wall Street Journal (WSJ).

"As a consequence, freight rates on the whole will remain elevated and volatile," he said.

The expense to move containers between China and the Netherlands increased by 115% in the week ending on January 4 compared to the previous week, WSJ said.

Chinese New Year to exacerbate problems

The industry is suffering from a shortage of containers in Asia owing to longer journey times, causing a headache ahead of the Chinese New Year next month.

"There is a real influx [of goods] from Asia," said Barillas.

In the run-up to the Chinese New Year on February 10, "all the ships are full," causing freight rates to rise, he added.

Customers are rushing to have their goods shipped before the celebrations bring China, the world's biggest exporter, to a week-long standstill.

A benchmark indicator for measuring the freight tariff rate of goods transported from China -- the Shanghai Containerized Freight Index -- has almost doubled in a few weeks.

Niels Rasmussen, chief shipping analyst at BIMCO, told AFP the spot rate has doubled.

"And, of course, it speaks about how desperate the situation is," he added.

The average rate for shipping goods out of China through most of Europe and the Mediterranean has increased by 15 to 20%, he said.