Drone and missile attacks on commercial vessels, as well as hijackings, have yet to abate as economic costs mount for shippers and global supply chains are snarled
Two months of drone and missile attacks on commercial vessels, as well as hijackings, in the highly contested Red Sea region by Iran-backed Houthi rebels, have yet to abate as economic costs mount for shippers and increased risks of snarled global supply chains.
The latest evidence that Red Sea disruptions will persist is a notice from the Department of Transportation informing commercial ship operators to avoid the “Southern Red Sea between 12N and 16N.”
There continues to be a high degree of risk to commercial vessels transiting the Southern Red Sea between 12N and 16N. While the decision to transit remains at the discretion of individual vessels and companies, it is recommended that US flag and US-owned commercial vessels remain North of 18N in the Red Sea or East of 46E in the Gulf of Aden until further notice.
Besides Houthi attacks on Western vessels, the US and allies have ramped up attacks on the rebels in Yemen with repeated airstrikes.
Bloomberg reported early Wednesday that one of the world’s largest shippers, Maersk, told clients in a notice to prepare for supply line disruptions as containerized vessels are rerouted to the Cape of Good Hope, which takes an extra 1-2 weeks for Asia to Europe shipping lanes.
“While we continue to hope for a sustainable resolution in the near-future and do all we can to contribute towards it, the situation currently remains untenable,” Maersk said.
According to Flexport data, more than 500 container ships that would have sailed through the Red Sea have been rerouted to the Cape of Good Hope at the southern tip of Africa. This is about a quarter of all the container shipping capacity in the world.
Meanwhile, a new report from the Financial Times, citing “American officials,” says the US has asked China to help rein in Houthi rebels.
Officials have repeatedly raised the matter with top Chinese officials in the past three months, asking them to convey a warning to Iran not to inflame tensions in the Middle East after Hamas’s October 7 attack on Israel and the ensuing war.
US national security adviser Jake Sullivan and his deputy, Jon Finer, discussed the issue in meetings this month in Washington with Liu Jianchao, head of the Chinese Communist party’s international department, according to US officials. Secretary of state Antony Blinken also raised it, said a state department official. -FT
In recent weeks, Red Sea diversions have tightened capacity and resulted in soaring container prices:
“We haven’t seen costs increase this quickly since the last crunch in the pandemic,” said Vincent Iacopella, a logistics expert at Alba Wheels Up, who spoke with Bloomberg.
Iacopella said, “Many of the underlying bottlenecks in supply chains remain, even though prices dropped last year as the Covid-19 disruptions faded.
The cost of shipping containers from China to the Mediterranean Sea has quadrupled since late November.
We pointed out last week that executives and investors are becoming concerned about Red Sea disruptions in earnings calls.
Using the Document Search function on Bloomberg, earnings-call mentions of “Red Sea” topped 41 last week, a record high. As the earning season progresses, the mentions will likely increase.
And as of writing this note, Sky News reports Houthi forces “fire a second missile from Al-Bayda towards the Gulf of Aden.”
President Biden’s Operation Prosperity Guardian faces severe hurdles as the West’s move to secure the critical waterway has failed so far.
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