As MSC and CMA CGM follow Maersk and Hapag-Lloyd in diverting their container ships from the war-plagued waters around the Suez Canal, global trade flows will soon begin to add increasing expenses and longer delays, industry sources said today.
The maritime shipping giants are acting to steer their valuable ships away from recent flurries of missiles fired from the shores of the Red Sea near the Bab al-Mandeb Strait, which threaten the cargo, the vessels, and the mariners, and have already led to quickly rising insurance prices for ships sailing in that area.
While military vessels from the U.S. and other nations continue to knock many drones and missiles out of the skies, a number of missiles have found their targets in recent days, sparking fires on some ships and knocking containers overboard. The violence continues to escalate as a side effect of Israel’s war with Hamas in the Gaza Strip region of Palestine.
One example of that violence was a strike on Friday on the MSC vessel “Palatium III” and another on the Hapag-Lloyd vessel “Al Jasrah.” Hapag-Lloyd cited that incident in its decision to alter its sailing routes. “Fortunately, the crew was not injured, and the vessel could continue its journey. As we see it today, the situation around the Suez Canal and the Red Sea is unsafe and the risks for our crews onboard are unacceptable,” Hapag-Lloyd said in a statement to shippers. “This is why we have had to take the decision to avoid the Suez Canal and the Red Sea with immediate effect, and instead route our ships around the Cape of Good Hope. We will reassess the situation in the Red Sea regularly and reinstate our services through the Suez Canal when the situation in the area is deemed safe and secure for our ships and crews and your cargo onboard.”
More broadly, the events raise the risk of further disruption to global supply chains, since the suspension of vessel routes through the Red Sea affects over 50% of the weekly container shipping capacity on routes between the Far East and Europe, forcing a diversion around the Cape of Good Hope and adding about 10 days to journeys, according to a report from Daniel Harlid, Senior Credit Officer, Moody’s Investor Service.
With close to 20,000 vessels passing through the Suez Canal each year, a suspension of trips would impact economies throughout the European Union (EU), since that region imported close to 20% of its goods by ocean transport from Asia in 2022, Harlid said. Most of that trade passed through the Suez Canal, and kinks in that supply chain could soon affect both retail and general manufacturers, which rely on that source for products such as rubber and plastics (42%), iron/steel/ferroalloy products (32%), and automobile industry products (28%).
In search of alternate routes, ships are also struggling to pass through the Panama Canal, said Polly Mitchell-Guthrie, VP, Industry Outreach & Thought Leadership at Kinaxis. That other canal has sharply restricted the number of size of vessels cutting between North and South American each day in reaction to a historic drought that is starving the famous locks of sufficient water to operate.
“With no clarity on whether the risk of Houthi rebel attacks will be contained in days, weeks or months, the Red Sea route may no longer be a viable option, an outcome that will cause a huge headache for shippers,” Mitchell-Guthrie said in a email statement. “As these disruptions from climate change and geopolitics play havoc with the world’s most critical trade chokepoints, higher prices won’t be far behind, much to the chagrin of central bankers and consumers alike, just as inflation seemed to be cooling.”
Another impact of the violence could be an increase in out of stock items following the winter holidays, according to an analysis by supply chain visibility platform provider Project44. That’s because of the dense traffic through the canal, with some 40 vessels near the strait and over 100 vessels in the wider area as of December 16, the company said. “The additional lead time these shipments will take was not scheduled as retailers were planning their inventory, and after the peak shopping season through the holidays, it is possible that inventories will be depleted. It is important to note that this should not impact holiday shopping and would more likely be noticeable in February,” project44 said.
Gartner, Inc.