Attacks by Iran-backed Houthi militants in the Red Sea have wreaked havoc on global shipping, increasing costs and travel times for shipping companies, according to experts who spoke to the Daily Caller News Foundation. Ultimately, the burden will fall on U.S. consumers.
The number of weekly flights through the Suez Canal and Red Sea has fallen by 42% over the past two months. around it 12% of world trade; according to Attended the United Nations Conference on Trade and Development. Experts told the DCNF that the extra expenses caused by the disruption will increase transportation costs due to multiple factors for shipping companies and ultimately be passed on to consumers, leading to higher prices and more inflation. (Related: 'Can't last forever': Federal debt more than doubles last quarter's economy)
“No matter how you look at it, avoiding the Red Sea comes at a cost to shippers,” Peter Earle, an economist at the National Bureau of Economic Research, told DCNF. “The initial attacks led to increases in ship insurance costs (by a factor of 10 in at least one case) and concerns about the safety of crew and equipment, resulting in several airlines changing routes around the Cape of Good Hope. I decided to do it.'' Others followed. Two other knock-on effects are driving up costs, as the route is at least twice as long: 10,000-12,000 nautical miles and 4,000-5,000 nautical miles. ”
Many shipping companies instead operate routes around South Africa's Cape of Good Hope, which adds about 10 days to the journey and requires more fuel and more labor costs. according to to Reuters. As a result, fuel requirements are expected to result in an additional $1 million in costs for each round trip between Asia and Northern Europe.
“The first and most obvious are increased fuel consumption, increased crew time, and increased support required,” Earl told DCNF. “Secondly, as shipping containers spend longer on ships, shortages are being reported at certain ports, which is pushing up prices on shipping exchanges. It's hurting shippers, and they're looking to give containers to manufacturers and other shippers to ship.''Consumer (final) price – if that price hasn't been reached yet. ”
Ships using the Red Sea also require special war risk insurance, which has increased 50 times since the attacks began and is now equivalent to around 0.7% to 1% of a ship's value. do. according to In the New York Times. Tankers carrying fuel are particularly wary of transiting the Red Sea because the explosive nature of their cargo threatens energy prices.
“Many automakers, including Volvo and Tesla, have indicated they intend to halt production for days or weeks to avoid backlogs of orders waiting for shipping,” Earl told DCNF. “If the disruption continues, we will see significantly higher prices for consumers for products that incur significantly higher shipping charges.”
Transport costs are rising rapidly amid geopolitical tensions in the Red Sea
In just six weeks, global freight rates have soared by more than 100% pic.twitter.com/XKDKIpMj7s
— Game of Trades (@GameofTrades_) January 25, 2024
American electric car company Tesla and automaker Volvo have suspended some production in Europe due to unavailability of parts needed for production, and other companies face the same fate as transportation problems persist. It suggests that there is a possibility. according to to Reuters. Shortages in production can constrain the supply of goods to consumers, causing prices to rise and leading to higher inflation.
The Red Sea is also along an important energy corridor, with large amounts of oil and liquefied natural gas moving through the Suez Canal, causing various fluctuations in energy prices in recent days. according to to Reuters. Rising energy costs not only increase the price at the gas pump, but permeate throughout the economy due to the need for energy during manufacturing and production.
Nearly 4 million tonnes of grain has been diverted from the Suez Canal since the offensive began, with around 7 million tonnes normally passing through this route. according to to Reuters. This diversion could increase transportation costs and raise global food prices.
“The situation in the Red Sea is critical,” Desmond Luckman, a senior fellow at the American Enterprise Institute, told DCNF. “That is why we are seeing the US and UK taking strong action against the Houthis to ensure that shipping is not disrupted. I am aware that this will happen.”
In an attempt to reduce risks in the Red Sea, the United States launched Operation Garden of Prosperity, targeting Yemen's Houthi rebels. The US and UK then launched attacks targeting underground storage areas where drones and missiles were stored, while also deflecting missile attacks on ships.
“I think it will take some time for these price increases to trickle down to consumers,” Luckman told DCNF. “Companies will want to determine whether this is a permanent or temporary phenomenon, and whether it gets worse.”
The global shipping industry is also facing increased costs due to a severe drought in the Panama Canal, another widely used shipping route in the Americas. according to To the Associated Press. Panamanian authorities have had to cut the number of ships allowed through the canal by 36%, forcing ships to detour around the southern tip of South America or wait to transit the canal.
“The problems with the Panama Canal are related to drought, which has resulted in fewer ships being able to pass,” Earl told DCNF. “Typically, around 90 to 100 ships pass through the canal every week, but with the water levels dropping, that number has dropped to between 40 and 50. 1 million USD moves to the top of the queue. That cost will no doubt ultimately hit consumers. ”
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