The Importance of the Red Sea and Suez Canal for Global Shipping

The Red Sea and Suez Canal play a crucial role in global shipping, with approximately 30% of trade from Asia to Europe passing through the canal. However, due to recent attacks on cargo vessels in the Red Sea, many ships have chosen to avoid the area, leading to significant delays and higher costs. Rerouting vessels around the Cape of Good Hope, for example, can take up to 10 to 12 days longer and increase shipping rates by up to 400%. While the impact of the Red Sea situation is significant, it is not expected to be as severe as the supply chain dislocations caused by the pandemic. Supply chains are expected to normalize quicker, although there remains a structural overhang of slack capacity that could affect the industry in the long run.