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RED SEA INCIDENT SPURS SURGE IN CARGO RATE AS LEADING SHIPPING LINES ADAPT OPERATIONS

Monday, 22 January 2024


The recent assault by Houthi forces on 50 merchant vessels in the Red Sea has reverberated across the international cargo sector, particularly affecting major container shipping companies. The attack, directed at key locations in Southwest Mokha, Yemen, and Hodeidah, Yemen, involved rocket and drone strikes on Tuesday night, as documented by CNBC on January 10, 2024.


Houthi fighters open the door of the cockpit on the ship's deck in the Red Sea in this photo released November 20, 2023. /Foto: Houthi Military Media/Handout via REUTERS


In the aftermath of this incident, several of the world's largest container shipping companies have chosen to temporarily halt their operations. The 20% decline in ship traffic in the Red Sea during December 2023 underscores the substantial disruption, prompting companies to either suspend operations or redirect routes, notably towards Cape Town, South Africa.

 

Prominent shipping entities, including Denmark's Maersk, Italy-Swiss Mediterranean Shipping Company (MSC), Germany's Hapag-Lloyd, France's CMA CGM, and British Petroleum from the UK, have been compelled to suspend their operations. The strategic redirection of routes to Cape Town has introduced logistical complexities, resulting in an additional 10-14 days of travel time and covering an extra 4,000 nautical miles (6,500 kilometers).

 

This prolonged operational duration has triggered a significant upswing in costs for the affected cargo lines. Supplementary fuel expenses, estimated at approximately US$1 million or IDR 15.5 billion (at a rate of IDR 15,500), have become a noteworthy financial burden. Moreover, the extended operational timeline has implications for increased insurance costs and protracted delivery times, intensifying the economic strain on these shipping companies.

 

While the global cargo industry grapples with these challenges, the ramifications of the Houthi attack extend beyond heightened security concerns, encompassing tangible economic impacts on the affected shipping lines. This, in turn, contributes to an overall escalation in prices within the industry.

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