Over one recent 30-day stretch in January 2024, 517 container ships steered clear of the Red Sea and sailed around the Cape of Good Hope, while 212 kept going through the Suez Canal. In November the ratio had been roughly the reverse. Jonathan Roach, who tracks container shipping for the London broker Braemar, gave those figures to The New York Times, which reported on January 24, 2024 on how Houthi missile and drone attacks were reshaping the economics of the route.
Days and fuel
The detour is not small. The Times said going around Africa can add up to two weeks to a trip, along with higher fuel charges. At a meeting of the UN Security Council on January 3, 2024, the secretary general of the International Maritime Organization, Arsenio Dominguez, said about 18 shipping companies had decided to reroute around the Cape, with transit times rising by around 12 days, according to the freight forwarders’ federation FIATA.
The Red Sea carries a lot. FIATA, citing a joint statement from the United States and allied governments, put it at some 15 percent of international shipping trade, including 8 percent of global grain trade, 12 percent of seaborne oil and 8 percent of the world’s liquefied natural gas. The Times described the choke point as handling 12 percent of global trade and nearly one-third of container ship traffic. Tankers carrying oil and LNG were also starting to avoid Suez, it added, even LNG tankers from Qatar that had been considered shielded from attack.
What it cost
The Drewry World Container Index, a composite of global shipping costs, had more than doubled since late 2023, the Times reported. Part of the rise came from a shortage of empty containers, since longer voyages keep boxes at sea. FIATA said freight rates on routes from Asia to northern Europe, the Mediterranean and the Middle East had already risen sharply and that many contracts were no longer being honoured, pushing bookings to spot rates.
Insurance took its own jump. War risk premiums for the Bab al-Mandeb strait had soared around fiftyfold from before the war, to as high as 1 percent of a ship’s value, with about 0.7 percent more common. For a ship carrying goods worth $100 million, that means an extra $700,000 for a few days in the Red Sea area. Marcus Baker of the insurance broker Marsh pointed out that rates for the Black Sea off Ukraine can run up to 3 percent.
The disruption reached factories. The Times said the attacks had already forced some shutdowns at European auto plants. FIATA reported that diversions via the Cape and Jeddah were expected to set off competition for limited berthing space in Europe for large vessels. It also urged shipping lines to be careful with surcharges, after reports of surcharges on unaffected trades such as the North Atlantic.
Roach told the paper it would probably take another three to four months or more of disruption for prices to match their 2022 peak. Christian Roeloffs of Container xChange predicted that China’s Lunar New Year holiday in February would give shippers time to recover and that “we will really see a normalization.”
