In the first half of 2023, the Suez Canal accounted for 12% of global trade, according to the IMF
Houthi attacks on cargo ships have cut Red Sea container traffic by almost 30% since late last year, according to the International Monetary Fund.
The Red Sea is an important shipping conduit for the Suez Canal, itself a vital artery for global trade. Speaking during a press briefing Wednesday, Jihad Azour, director of the IMF’s Middle East and Central Asia department, explained that the decline in shipping volume and related increases in shipping costs are creating additional delays for goods coming from China.
“If this trade issue will escalate, this could have an increased impact on economies in the region,” he said.
In the first half of 2023, trade going through the Suez Canal represented about 12% of global trade, including 30% of container traffic, 10% to 15% of global seaborne cargo and 8% of global liquefied-natural-gas shipments, according to the IMF. As of Jan. 21, 2024, the 10-day cumulative shipping volume through the Suez Canal had dropped close to 50% relative to the previous year, the IMF said in its regional economic outlook update for the Middle East and Central Asia, released Wednesday.
As the shipping industry contends with the Red Sea disruption, container shipping rates have risen dramatically, B. Riley Securities analyst Liam Burke noted. “Any kind of disruption in terms of attacks on shipping always results in higher rates,” he said.
Container shipping rates had declined from the third quarter of 2021 into the third quarter of 2023, Burke told MarketWatch. But the rates rose 150% from Dec. 31, 2023, to Jan. 29, 2024, the analyst said, citing data from the Freightos Baltic Index: Global Container Freight Index.
Shares of shipping giant AP Moller-Maersk A/S AMKBY, are up 0.4% Wednesday, while Hapag-Lloyd AG shares HPGLY, -10.14% are down 10.1%.
Burke told MarketWatch that he has not seen the same spike in rates for dry-bulk shippers transporting commodities such as grain. “They are very seasonal,” he said, noting that grain traffic is typically weighted to the second half of the year.
Dry-bulk shipper Eagle Bulk Shipping Inc.’s stock EGLE, -0.33% is up 0.3%, while Golden Ocean Group Ltd.’s stock GOGL, -0.56% is up 0.6% and Star Bulk Carriers Corp.’s SBLK, is up 0.6%. Safe Bulkers Inc. shares SB, -2.18% are down 0.9% and Genco Shipping & Trading Ltd. shares GNK, -1.90% are up 0.1%.
Experts are also weighing the impact of the Red Sea disruption on U.S. businesses. While the overall volume of U.S. trade that transits the Suez Canal is only about 12%, the effects of the attacks are being felt far and wide, Jonathan Gold, the National Retail Federation’s vice president of supply-chain and customs policy, said in prepared testimony on Capitol Hill Tuesday. U.S. retailers, he said, are now rethinking how they will handle back-to-school and holiday shipments.
Amazon.com Inc. AMZN, -2.39%, which touts its Amazon Web Services supply chain as a solution to companies’ logistics issues, is also highlighting the impact of recent events. Diego Pantoja-Navajas, vice president at Amazon Web Services, said the problems caused by the disruption in the Red Sea have been compounded by drought conditions in the Panama Canal region. “The impact of these two choke points affects any sector that ships components or finished goods from a point of origin to a point of sale — which is virtually everything in our modern world,” he told MarketWatch. “While inventory visibility contributes to the problem, the issue is also fueled by components and finished goods taking longer to arrive and costing more to insure.”
Pantoja-Navajas added that businesses are being forced to rethink their approach to “just in time” inventory, which relies on stable conditions. “Given the pandemic, trade issues, two wars and climate change, this approach is no longer viable,” he said. “All of this volatility means that items must sail around the problem areas, taking longer to arrive at their final destinations. Automotive companies pausing production in Europe is an example of this.”
The Amazon executive said that these challenges can be mitigated through better collaboration. “Manufacturers and their upstream suppliers should be communicating more effectively and more often,” he said. “Companies need to strengthen their relationship with vendors and provide more transparency. By unifying data scattered across a vast network of systems, digital supply chains can provide machine-learning based recommendations as well as collaboration capabilities to help companies make their supply chains more resilient.”