How Global Shippers Are Dealing With a Worsening Red Sea Crisis
Feb 1, 2024
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Sal Mercogliano, a maritime historian and Campbell University professor, dives into the escalating crisis in the Red Sea. He discusses the impact of Houthi attacks on shipping, rising insurance costs, and operational dilemmas faced by shipping companies. Mercogliano sheds light on military responses to secure vital trade routes and highlights historical context, including the U.S. Navy's role. The conversation also covers shifts towards regional shipping solutions and their implications for global trade and logistics.
The Houthi attacks in the Red Sea have resulted in significant disruptions to global trade, impacting various shipping routes and causing delays, diversions, and increased costs.
The Houthi attacks are primarily driven by their ideological connection to Palestine and serve as a means to disrupt global trade and impose costs on ships passing through the Red Sea, raising questions about the effectiveness of international efforts and navies in countering and deterring such attacks.
The disruptions caused by the Houthi attacks have led to significant economic impacts in terms of increased fuel costs, port stays, additional charges, adjustments in shipping rates, delays in goods shipments, and potential disruptions in supply chains, highlighting the need for improved coordination and collaboration among navies to safeguard global trade.
Deep dives
The Red Sea Disruptions and the Impact on Global Trade
The Red Sea disruptions, caused by the Houthi attacks, have had a significant impact on global trade. With around 11% of the world's trade passing through the region, the attacks have resulted in delays, diversions, and disruptions to various shipping routes. Not only container ships, but also liquefied natural gas carriers, liquefied petroleum gas carriers, tankers, and bulk vessels have been affected. The attacks have created significant costs and challenges for shipping companies, including increased war risk insurance rates. As a result, many ships are choosing to divert and sail around Africa, adding considerable time and expenses to their journeys. The disruptions caused by the Houthi attacks have had a greater impact on global trade than previous challenges, such as Somali piracy, and call for a more unified international effort to address the situation.
The Evolution of Houthi Attacks and Their Strategy
The Houthi attacks in the Red Sea have evolved over time, starting with their focus on Israeli-owned ships and expanding to target other vessels allegedly connected to Israel. While actual damage to the ships has been limited, the attacks have effectively increased war risk insurance rates, making it cost-prohibitive for certain ships to sail through the region. The Houthi attacks are primarily driven by their ideological connection to Palestine and the Gaza Strip. These attacks serve as a means for the Houthi to disrupt global trade and impose costs on ships passing through the Red Sea. The attacks also raise questions about the ability of the international community and major navies, such as the U.S. Navy, to effectively counter and deter such attacks.
The Economic Impact and Adjustments in Shipping Rates
The disruptions in the Red Sea have resulted in significant economic impacts and adjustments in shipping rates. Companies are facing increased costs for fuel, port stays, and additional charges due to diversions and delays. Long-term shipping agreements are also facing readjustments, with surcharges and extra fees being imposed. Furthermore, the inability to reposition empty containers back to Asia has caused delays in goods shipments, leading to potential disruptions in supply chains. These impacts are not limited to the European and Asian regions, but are also affecting shipping rates to the United States. As a result, the disruptions caused by the Houthi attacks have led to higher transportation costs, delays, and complications in the movement of goods.
The Role of Navies and Challenges in Protecting Shipping
Navies, including the U.S. Navy, the Royal Navy, the French Navy, and others, have taken on the responsibility of protecting shipping in the Red Sea and adjoining areas. These navies deploy destroyers and other vessels as escorts to safeguard ships against missile attacks and provide a defensive presence. However, the mission presents challenges in terms of coordination, communication, and resource allocation. The navies rely on a system of war risk insurance underwritten by shipping clubs, with insurance rates fluctuating based on the level of threat. The decision of whether or not to sail through risky areas ultimately lies with shipping companies, but factors such as availability of insurance, naval protection, and national registries play a role in determining the route. The involvement of navies from various countries highlights the shared interest in safeguarding global trade, but there is room for improved coordination and collaboration among navies to effectively address emerging threats.
Implications for Global Trade and the Need for Diplomatic Solutions
The Houthi attacks and the resulting disruptions in the Red Sea have significant implications for global trade. They raise questions about the stability and predictability of international shipping routes and the vulnerability of global supply chains. The attacks underscore the need for diplomatic solutions to address the underlying political tensions and conflicts driving the Houthi attacks. Resolving the Israeli-Palestinian conflict and achieving peace in the region could potentially mitigate the attacks and reduce the risks posed to global trade. Moreover, there is a need for a unified and coordinated international effort to protect shipping and ensure the free flow of goods. The implications of the Houthi attacks highlight the interconnectedness of global trade and the necessity for a comprehensive approach that combines diplomatic resolutions, naval protection, and effective risk management strategies.
Attacks on ships in the Red Sea continue to escalate. What started with narrow strikes by Yemeni-based Houthi militants against Israel-linked vessels has now expanded to ships carrying a wide range of freight, including oil and liquified natural gas. The US military has responded with strikes against Houthi targets, but so far they don't appear to have much of a deterring effect. Meanwhile shipping delays and costs — driven in part by anxious insurers — continue to worsen. To understand the challenge to global trade and how bad it could get, we speak with maritime historian Sal Mercogliano, a professor at Campbell University and the host of the What Is Going On With Shipping? show on YouTube. He discusses how shipping companies are making operational decisions in the area, how boat crews are coping, and how various international militaries are responding. He also talks about the broad history of the US Navy and its traditional role in securing international trading routes.
