Exporters face shipping delays, higher costs amid Houthi attacks on vessels 

Houthi militias march during a rally of support for the Palestinians in the Gaza Strip and against the US strikes on Yemen, outside Sanaa on Jan 22, 2024. (PHOTO / AP)

The ongoing Red Sea crisis is putting pressure on Asian exporters, especially those that primarily ship to Europe, analysts said, noting that intensified attacks have disrupted shipping routes, caused shipping delays and a spike in freight rates.

The Yemeni Houthi group’s attacks on ships in the Red Sea in protest against Israeli attacks in Gaza and retaliatory strikes from US and UK military have disrupted global container shipping, especially along the critical Asia-Europe corridor.

BMI Research said in a report that the disruptions have pushed ships to reroute, raised shipping costs, and increased transit times.

“We forecast that freight rates will stay high, largely influenced by the Asia-Europe rates, as ongoing conflict risks in the region remain,” BMI said.

Josua Pardede, chief economist at Jakarta-based Permata Bank, said that in terms of total trade volume, the impact of the Red Sea crisis is minimal on Indonesia as the European Union is not the nation’s largest trading partner.

However, Indonesian exporters of palm oil and footwear, which have huge European markets, would be hurt by increased shipping costs.

“We see a rise in global transportation costs, as seen through the Freightos Baltic Global Container Index that has increased 155.6 percent from the late December 2023 level,” Pardede told China Daily.

In addition, global prices of crude oil have increased due to the Middle East conflict, he said. “This potentially pushes up domestic inflation to a higher level. If the conflict continues to escalate, and consequently oil prices remain high, this will pose a risk to our state budget.”

The Suez Canal accounts for about 15 percent of global trade and 20 percent of container trade, the United Nations Conference on Trade and Development (UNCTAD) has noted.

The prolonging of the Israel-Palestine conflict since last October has pushed Yemen’s Houthi group to launch attacks against ships related to Israel passing through the Red Sea. UNCTAD said the attacks have slashed Suez Canal trade volume by 42 percent since November.

In order to avoid attacks, vessels go via the Cape of Good Hope in South Africa but this route adds 14 days to Asia-Europe voyages, an S&P Global Commodity Insights report noted.

The longer shipping route has increased freight costs. The Drewry World Container Index increased by 5 percent to $3,964 per 40-foot container in the week ending Jan 25, the highest rate recorded since October 2022.

China’s Foreign Ministry spokesman Wang Wenbin said the Red Sea is an important international trade route for goods and energy.

“We do not hope to see tensions in the region, (and we) call for a halt to the harassment and attacks on civilian ships,” he told a daily briefing on Jan 30.

Benny Soetrisno, chairman of the Indonesian Exporters Association, said exporters have seen a significant rise in transportation costs, as much as 40 percent, owing to the Red Sea crisis, according to a report on Indonesian news website Bisnis.com. 

Soetrisno said the higher shipping cost has slowed demand from Europe.

Fitch Ratings said market conditions for European chemicals, which are dependent on Asian imports, have already fallen from top-of-the-cycle to below mid-cycle.

For natural gas exporters like Qatar, the Suez Canal is important as this route is usually used to ship liquefied natural gas to Europe.

Dutch bank ING noted that LNG trade flows might change if the Red Sea tension continues to escalate. “These flows will avoid the Red Sea,” it said.

Leonardus Jegho is a freelance journalist for China Daily.

Contact the writers at prime@chinadailyapac.com