Red Sea attacks harm global trade by targeting shipping

Recent missile and drone attacks by Houthi militants in Yemen on ships passing through the Bab al-Mandab strait have posed a threat to the shipping industry and its customers. The attacks, apparently in support of Palestinians in Gaza, have come at a time when shipping companies are already grappling with disruptions caused by the pandemic and a drought that has affected the Panama Canal.

As a result of the attacks, container firms accounting for 95% of the capacity that usually crosses the Suez Canal have suspended services in the area. Energy firms like bp and Equinor have also temporarily halted their ships from using the canal. Shipping companies have resorted to rerouting vessels around Africa, which will extend journeys and create potential disruption at ports.

However, analysts are cautiously optimistic that this crisis will not significantly impact global trade. Unlike during the Ever Given incident in 2021, supply chains are not currently under immense strain. Shipping rates had surged to astronomical levels back then due to capacity cuts and increased consumer spending during lockdowns. This led to record profits for shipping firms in 2022. The industry's customary response to high rates is to order new vessels, which are starting to arrive. With spare capacity, running longer routes should not cause the same level of disruption seen during the pandemic.

While rates could double as a result of the Red Sea turmoil, they are expected to stay below their pandemic peaks, and shipping companies' profits are forecasted to decline significantly in 2023. The shipping industry's cyclicality and the arrival of new vessels will contribute to the overall resilience of the sector.

In conclusion, although the attacks on ships in the Red Sea pose a danger to the shipping industry, the overall impact on global trade is expected to be limited. The industry has already experienced disruptions and has taken measures to mitigate potential disruptions caused by rerouting vessels. While rates may increase, they are unlikely to reach the levels seen during the pandemic, and shipping companies' profits are forecasted to decline.


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