La Jornada – The effects of tensions in the Red Sea on the global economy

Paris. Attacks by Yemen's Houthi rebels on commercial and military ships in the Red Sea are already having economic consequences, limited at the moment, and their severity will depend on how long the crisis lasts, experts point out.

The salient points of the situation are:

Ocean circulation under stress

Attacks on merchant ships have increased manifold in recent weeks. About 12 percent of global maritime trade passes through the Bab al-Mandeb strait, which controls access to the southern Red Sea, in normal times. However, since mid-November, the number of containers has dropped by 70 percent, industry experts say.

Many ship owners prefer to interrupt their operations in this area and opt for an alternative itinerary via the South African Cape of Good Hope, which is much longer and therefore more expensive.

In addition, another area is affected, in this case a climatic factor. Drought affecting the Panama Canal has significantly reduced shipping between Asia and the Americas.

In normal times forty ships pass through the canal daily, but these days the number has been reduced to 24.

Delays and Stoppages

Several companies, including Swedish furniture giant Ikea, have already warned of delays in their deliveries. “The situation at the Suez Canal will cause delays,” the company said in an email to AFP.

Auto manufacturing is similarly disrupted.

Tesla said it would halt production at its European factory for two weeks between January 29 and February 11.

In turn, Volvo's factory in Ghent, Belgium, plans to close for three days this month due to delays in deliveries due to lack of gearboxes and “restructuring on sea lanes”.

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“Capital goods or electronic companies may face delays. And for those who work at a frantic pace and have small stocks (of goods), the situation can be problematic,” Anno Kuganathan, economist at Alliance Trade, confirmed to AFP.

In Spain, the Association of Manufacturers and Distributors (AECOC) announced that several sectors have advanced orders for some raw materials and commercial goods such as furniture and textiles. “It is to avoid disruptions in the supply chain,” the alliance pointed out.

Even the transport of liquefied natural gas will be “affected” by a surge in the Red Sea, Qatari Prime Minister Mohammed bin Abdulrahman Al Thani warned on Tuesday from the Davos forum, one of the world's major producers.

Inflationary pressures

Shipping companies are increasing their rates significantly to cover costs due to the current crisis.

The Shanghai Freight Index (SCFI), one of the key indicators to measure the price of goods shipped from China, has doubled in a month.

According to Container xChange, the additional cost of fuel is estimated at 20 percent.

The logistics site estimates that the crisis in the Red Sea could increase ocean freight costs by 60 percent and shipowners' insurance premiums by about 20 percent.

All this is fueling fears of renewed inflation.

The Oxford Economics analysis center predicted that the Red Sea would be closed to shipping for months and transport costs would add seven-tenths to global inflation by the end of the year, assuming transport costs were “double December prices”.

So everything depends on the timing of the crisis.

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“It is more expensive and longer to cross Africa via the Suez Canal. But at the moment it's more of a security problem than a logistical one,” said Siegfried Russwurm, head of the BDI, an organization of German industrialists.

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