How big is the Red Sea crisis for the global economy?

Recently, the Red Sea has been in the spotlight. The frequent attacks by Yemen's Houthi armed forces on merchant ships "linked to Israel" in the Red Sea region have not only forced a number of shipping giants around the world to divert, triggering concerns about the stability of international shipping and the global supply chain. How important are the Red Sea lanes? What will be the impact on the global economy?

Detour to the Cape of Good Hope

International giants suspend Red Sea routes

The Red Sea is located between northeast Africa and the Arabian Peninsula, connecting the Mediterranean Sea through the Suez Canal in the north, connecting the Gulf of Aden through the Mandeb Strait in the south, guarding the traffic arteries of Asia, Africa and Europe, and is the only way for ships to and from the Atlantic Ocean (4.020, -0.04, -0.99%) and the Indian Ocean. It is also known as one of the busiest, most important and most controversial waterways in the world.

Now, a global shipping crisis is unfolding here.

Due to the intensive attacks by the Houthi armed forces on a number of merchant ships passing through the Red Sea Mander Strait to Israel, local time on December 15 to 16, including Swiss Mediterranean, Denmark Maersk, France's CMA, Germany and other global shipping giants announced to avoid the Red Sea route. Energy giants such as BP also pressed the "pause button" on oil tanker traffic in the Red Sea on Wednesday.

On December 20, the reporter learned from the world's largest maritime freight forwarder Kuexun Group that some ships of a number of shipping companies have chosen to detour the Cape of Good Hope, including Mediterranean Shipping, Masky, COSCO Shipping, Orient Overseas, Hapal-Lloyd, CMA, ONE, Hyundai Merchant Marine, Wanhai, Yangming Shipping, Nile Shipping, the President of the United States and so on.

Some freight forwarders told reporters on the 20th that they had received customer notices from shipping companies including Hapag-Lloyd and Evergreen Shipping in the past two days, announcing that they had changed from the original suspension of the Red Sea voyage to the Cape of Good Hope.

On the 20th, Maersk, the world's second largest shipping company by capacity, told reporters that for safety reasons, all ships that had previously suspended sailing and passing through the Red Sea region will now bypass Africa via the Cape of Good Hope. These vessels will continue to sail on the detour route based on practical operational feasibility. Maersk will be in touch with affected customers to provide more details.

As of Dec. 18, Maersk had about 20 vessels suspended from passing through the region, with half of them waiting east of the Gulf of Aden and the rest in the Red Sea south of Suez or the Mediterranean north of Suez.

Evergreen Shipping announced on December 20 that based on the safety inspection of cargo, ship and crew, Evergreen Shipping temporarily stopped receiving Israeli cargo and suspended the passage of Red Sea from now on. Vessels of the Red Sea regional route will sail to the surrounding safe waters to wait for notification, and evaluate whether to adjust the port of call according to the subsequent situation development; Ships on Asian routes to and from the Mediterranean, Europe and the east coast of the United States, which were supposed to pass through the Red Sea, will be diverted around the Cape of Good Hope on the southern tip of Africa to their destination ports.

Hapault also said that the situation around the Red Sea/Suez Canal was unsafe and the crew on board were at great risk, so it was immediately decided to avoid the Suez Canal and the Red Sea, to divert the ship around the Cape of Good Hope, and that the situation in the Red Sea would be reassessed regularly.

As the situation in the Red Sea remains unstable, more shipping companies are expected to join the "detours".

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For international shipping companies that have suspended Red Sea routes, the best option is to re-route through the Cape of Good Hope, the southernmost tip of Africa.

According to energy intelligence agency Vortexa, if merchant vessels seek alternative routes, such as a detour around Africa's Cape of Good Hope, the journey time on major routes from the Middle East to Europe and from India to Europe would increase by 58 to 129 percent. The biggest increase in the time it takes for goods to reach their destination was on the Middle East Gulf to Mediterranean route, which increased by 129% from 17 days to 39 days.

Citic Futures also pointed out that the rerouting of cargo ships will increase the sailing time from the Far East to Northwest Europe by about 9 days, increase the time of a voyage by about 18 days, and reduce the turnover efficiency of ships by about 19%.

By adopting the detour scheme, the transport distance of ships and the transport market have increased significantly, and the turnover efficiency of ships has decreased, resulting in the shortage of shipping capacity on the Asia-Europe route in the short term.