The escalating instability in the Red Sea is sending ripples through the global economy. With the Houthi group in Yemen intensifying their blockade, the flow of essential goods is being severely hampered.
The Houthis have declared their intent to prevent Israeli ships and those bound for Israel from navigating the Red and Arabian Seas until humanitarian aid reaches the Palestinian Gaza Strip. Their strategic use of drones and missiles poses a significant threat to vessels traversing the crucial 20-mile-wide Bab el-Mandab Strait, a key chokepoint between Eritrea, Djibouti, and Yemen.
This turmoil is far from isolated. Approximately 15% of global shipping and 30% of container traffic pass through the Red Sea annually. Additionally, vital shipments of grain, oil, and liquefied natural gas—comprising 8%, 12%, and 8% respectively of global trade—are at risk.
In response, many logistics companies are rerouting their ships around the Cape of Good Hope. This detour adds roughly 3,500 nautical miles to shipping routes, extending journeys by seven to eighteen days and complicating the already intricate global shipping network. The International Maritime Organization reports that 18 leading shipping companies have opted for this alternative path.
The economic impact is palpable. Sea freight rates have surged, reaching levels reminiscent of the COVID-19 pandemic. According to the Drewry World Container Index, the cost of a 40-foot container skyrocketed to $3,072 on January 11, even before the recent strikes by the U.S. and UK on Houthi targets in Yemen. Furthermore, the Shanghai Container Freight Index has seen a dramatic 161% increase since December 15, jumping from $1,029 to $2,694.
Maritime traffic data from PortWatch highlights a stark decline in passage through traditional routes. Ships crossing the Bab el-Mandeb Strait have decreased by 45% compared to the previous year, and those navigating the Suez Canal have dropped by 28%. In contrast, traffic around the Cape of Good Hope has surged by 63%, reflecting the industry's shift in response to the crisis.
As the situation in the Red Sea continues to evolve, the global economy remains on edge, grappling with the cascading effects of disrupted supply chains and escalating shipping costs.
Reference(s):
cgtn.com
