By (Mrs) Amb Narinder Chauhan
The Suez Canal, which connects the Red Sea to the Mediterranean, is the shortest route between Europe and Asia. About 12% of global shipping traffic normally transits the waterway. Recently, most of the world’s largest shipping firms have said they will avoid the Red Sea and, therefore, the Suez Canal after Yemen-based Houthi rebels fired missiles at cargo ships over the Israel-Hamas war. Instead, ships travelling between the Far East to Europe will need to make detour around the entire African continent via South Africa’s Cape of Good Hope. The journey will take more than a week longer and will add about 3,500 nautical miles (6, 482km).
Although supply chains have since mostly returned to normal, the security threat in the Red Sea could see prices double over the next few weeks, according to analysts. Global freight rates were already rising again after the Panama Canal last month curbed the number of vessels that could ply the waterway that connects the Atlantic and Pacific oceans due to the drought.
Fortunately, the shipping industry has learned the lessons from the post Covid supply chain crisis, and many firms have expanded their fleet of cargo vessels, meaning the impact of any lasting Red Sea rerouting will not be disastrous.
For the first few days of the current crisis, shipping firms had kept their vessels in a holding pattern in the hope that the attacks would be curtailed or security in the region would be quickly increased. This past week, more and more vessels are being rerouted around Africa which means the carriers are losing faith that the crisis would be resolved any time soon. Over 300 vessels have opted for a 6000 nautical mile diversion around the Cape of Good Hope in recent days.
The decision already greatly impacts the cost of shipping goods. If it becomes an extended crisis, it could spark a hike in the price consumers pay for imported goods. One round trip voyage from Shanghai to Rotterdam around the Cape of Good Hope will add a million dollars in fuel. Insurance premiums have soared in response to the attacks. The delays in shipping will then have knock on effects at container ports across Europe. If a port handles 50,000 containers per week, and if nothing arrives for a week and the following week a hundred thousand containers arrive, it will cause congestion problems.
While the container ships may be hit harder overall, the delay may be felt first by ships carrying fuel, whether its oil or coal or gas, due to the winter in the northern hemisphere.
Further, shipping companies sailing around Cape also face tough choices over where to refuel and restock, as Africa ports struggle with red tape, congestion, and poor facilities. South Africa’s major ports, including Durban, as well as Cape Town are among the worst performing globally. Other large African deep-water ports along the Cape route such as Mombasa in Kenya and Dar es Salaam in Tanzania are too ill equipped to handle the expected traffic over the next few weeks. Rough weather with high seas, common at the ‘Cape of Storms’ as well as the cyclone prone Mozambique Channel, mean ships could burn through their fuel quicker, making refueling services crucial.
The US has previously said intelligence revealed Iran was deeply involved in planning attacks on vessels working closely with Yemen’s Houthis to cause the crisis that experts fear is already threatening the world economy. Houthi forces say they are targeting vessels with links to Israel in retaliation for its war in Gaza. Ten days ago, two civilian ships in the Red Sea sounded the alarm that they were under attack. The Norwegian Blaamanen carrying a quarter of tons of sunflower oil, reported it had narrowly missed an attack drone, while Indian crude oil tanker Saibaba confirmed it had taken a direct hit. 17000 ships a year cross between the Mediterranean and Arabian Sea.
The US announced a multi-nation Operation Prosperity Guardian to safeguard maritime commerce in the Red Sea. As part of the measure, the US, along with Britain, Bahrain, Canada, France, Italy, the Netherlands, Norway, Seychelles, and Spain will stage joint patrols in the southern Red Sea and the Gulf of Eden. Not all the initial coalition members of the operation are yet on board and some are adding caveats.
Although the US and British warships in the area have begun shooting down Houthi missiles and drones, it is unclear whether the presence of a larger naval force will be enough to halt the attacks altogether. Some ships insist on plying on the Red Sea route although with armed guards in case Houthi rebels boarded the ships – the rebels have insisted that the US led security operation would not deter them and that they have already drawn world attention to the Israel-Hamas conflict.The rising uncertainty in the Red Sea has already started hitting the Indian market as we enter the last leg of this calendar year with low trading volumes in a holiday-shortened week, and a potential threat in a jump in Covid 19 cases. About 65% of India’s crude oil imports in FY 2023 worth $105b passed through the Suez Canal. India exports low value containerized goods like machine parts as well as low end textiles to Europe via the Canal. After the attack on a few of our container ships Indian shippers were forced to divert some of their services around the Cape of Good Hope. While, On the one hand, the container shipping lines have increased capacities and introduced new services to assist supply chains, on the other, the global scenario is making things more difficult. While India is not part of the US led Operation Guardian, the country can play the role of a mediator as an affected party and as a large trading nation in view of its good relations with various players in the Middle East, including Ira and Israel.
The author is a former Indian Ambassador.
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