Because of the war in Gaza, ship owners fear attacks that will disrupt global supply chains during the fall months when retailers typically import Christmas goods..
Freight rates have reached their highest level in 18 months, threatening potentially broad impacts on the low inflation target.
- Shipping a container on a major shipping route is now more expensive than it was when the Houthis first began attacking boats in the Red Sea late last year to prevent ships from docking and exporting to and from Israel..
- The index, which measures the average cost of a 20-foot container shipped from Shanghai to Europe – the most widely used measure of shipping cost – reached $3,949.
- The Shanghai Container Shipping Index rose (SCFI) sharply last month, according to data provided to Sky News by the global logistics company.
The network monitored prominent stages in the “shipping price” crisis over the past few years, leading to the current consequences associated with the escalation of tensions in the Middle East, passing through the crisis that befell the Suez Canal, then the crises resulting from the rise in energy prices due to the war in Ukraine.
The blockage of the Suez Canal by the Ever Given container ship that ran aground in 2021 led to a sharp rise in shipping costs as goods could not move freely along the vital shipping artery, causing chaos at ports and choked supply lines. Boats being forced to make alternative trips and divert their course also led to higher shipping costs.
Various countries suffered from the consequences of this widespread crisis, including European countries that are directly suffering from the threats as they rely heavily on these affected routes. In the United Kingdom, for example, it was this wave of supply chain problems that caused part of the “first shock” to the economy that caused the rate of inflation to rise, that is, the rate of rise in prices..
The economy has largely recovered from shocks – including rising energy prices caused by the war in Ukraine, which sent inflation to a 41-year high of 11.1 percent in October 2022..
While inflation has fallen significantly – to 2.3 percent in the latest reading – expensive shipping could lead to higher prices.
It comes at a time when most goods on UK shelves spend at least part of their life at sea, so importers having to spend more to get goods to the UK could mean consumers pay more on the goods tray.
Big challenges
The researcher in economic affairs, Mazen Arshid, points out in exclusive statements to the “Eqtisad Sky News Arabia” website that the global shipping sector has faced great challenges as a result of several interrelated factors that are not new today, but rather extended since the period of the Corona pandemic, and in this context he points out that:
- One of the most prominent of these factors is escalating economic and geopolitical tensions, including tensions in the Red Sea due to Houthi attacks on ships, which have led to increased maritime insurance costs and delayed shipments.
- This significantly affected the movement of trade between Europe and Asia, as about 10 percent of global trade depends on this waterway represented by Bab al-Mandab.
He explains that the Corona virus pandemic also had a major impact on the shipping sector, as it led to bottlenecks in supply chains and a significant increase in shipping costs, stressing that climate changes and the increase in natural disasters also affect shipping operations (..) as the year 2023 witnessed many Accidents that disrupted some shipping operations, delayed shipments, and damaged ports (..).
He also points out that economic and political sanctions are another factor that complicates matters, as the sanctions imposed on Russia after the war in Ukraine affected oil and gas shipments, which prompted some companies to search for alternative and expensive shipping methods. For example, European companies were forced to import gas. LNG from the United States at a much higher transportation cost.
He adds: All of these factors put pressure on companies to adopt new strategies, as companies increasingly continue to develop technology to improve the efficiency of supply chains, which was reflected in the year 2023, in increasing investments in smart shipping technologies by a greater percentage, and diversifying supply sources has also become a major strategy. , as companies look for suppliers in regions less exposed to geopolitical tensions and natural disasters.
Commercial shipping is facing disruptions globally, including in the Red Sea region, where ship operators are avoiding passage through the Suez Canal due to attacks on ships by Houthi militants based in Yemen.
Relative calm
But on the other hand, the CEO of the Corum Center for Strategic Studies, Tariq Al-Rifai, said in exclusive statements to the “Eqtisad Sky News Arabia” website that the increasing pressures on the sea shipping sector may witness stability now, which is a relative calm compared to the previous situation in the past months after a month. Last October, with the start of the war in Gaza.
The fate of the stability of shipping prices is linked to the extent of progress that can be made in reaching a settlement regarding the war between Israel and Hamas, and with past initiatives and efforts in this direction.
Al-Rifai adds: The current period is witnessing stability in the sector and the absence of interruptions or broader impacts on supply chains such as those to which the sector has been exposed over the past periods, an indication of a relative reduction of the crisis.
It is expected that the next stage will witness no increase in pressure on the current situation and on the shipping sector in particular, in light of the somewhat calm and stabilization of the current events.
But major shipping companies still view these tensions with suspicion and their impact on their operations, after they stopped traffic from the Suez Canal. A few days ago, a spokesman for the German shipping company Hapag-Lloyd said that his company does not expect the shipping industry to resume sailing through the Suez Canal any time soon, even if it is possible to reach a ceasefire between Hamas and Israel now in the Gaza Strip. This is days after Palestinian factions welcomed the UN Security Council resolution supporting a ceasefire proposal in Gaza.
The spokesman said in statements quoted by Reuters: “Even if there is a ceasefire now, this does not mean that the Houthi attacks will stop immediately,” stressing that even after traffic through the Suez Canal resumes, it will take between four to six months. At least weeks to rearrange schedules and return operations to normal.
As for Maersk, it said, “The ongoing threats to commercial ships in the Red Sea and the growing bottlenecks in the supply chain indicate that this situation will not improve soon. Greater capacity than expected will be needed to solve these problems and stabilize the global supply chain.”
The impact of the war in Ukraine
For his part, the economic expert, Anwar Al-Qasim, points out in exclusive statements to the “Eqtisad Sky News Arabia” website that:
- The global shipping market depends primarily on geopolitical stability and the smooth flow of international trade, in addition to encouraging prices and international agreements regulating this sector, which is a very vital artery for the local and international economy.
- This sector had witnessed a strong return after the Corona pandemic and the stagnation, deflation and inflation it caused, especially in the major industrialized countries. However, it is now facing increasing pressure on a global scale (in light of the subsequent crises after the pandemic), and as a result, the prices of freight loads are rising this year. (..).
- The war in Ukraine and the European sanctions on Russia had an impact on the amount of freight and logistics companies transported in various forms, in addition to an increase in insurance costs, especially in the Red Sea, against the backdrop of the Israeli war on Gaza.
This comes despite the fact that the return of international trade to its previous state in China (the second largest international economy) had represented great hope for the international recovery of this sector (..).
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