The ongoing crisis in the Red Sea is creating significant challenges for Asian exporters, particularly those with a focus on shipping goods to Europe. Analysts report that heightened attacks in the region have disrupted crucial shipping routes, leading to delays and spikes in freight rates.
The attacks, primarily attributed to the Yemeni Houthi group in protest against Israeli actions in Gaza, along with responses from US and UK military forces, have had a global impact on container shipping, especially along the vital Asia-Europe corridor, as highlighted by BMI Research in its January report. Rerouted ships, increased shipping costs, and extended transit times are among the consequences of these disruptions.
“We forecast that freight rates will stay high, largely influenced by the Asia-Europe rates, as ongoing conflict risks in the region remain,” stated BMI, emphasizing the persisting uncertainty.
Josua Pardede, Chief Economist at Jakarta-based Permata Bank, notes that while the overall impact on total trade volume may be minimal for countries like Indonesia, exporters of specific goods, such as palm oil and footwear, which have substantial European markets, are likely to be adversely affected by rising 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 late December 2023’s level,” Pardede explained, underlining the broader economic repercussions.
The Suez Canal, a key trade route, accounts for approximately 15 percent of global trade and 20 percent of container trade, according to the United Nations Conference on Trade and Development. Ongoing attacks have reduced Suez Canal trade volume by 42 percent since November, underscoring the severity of the situation.
To evade the threat of attacks, vessels are opting for the longer route via the Cape of Good Hope in South Africa, adding 14 days to Asia-Europe voyages, as highlighted by S&P Global Commodity Insights data. This extended shipping route has led to increased freight costs, with the Drewry World Container Index reaching its highest rate since October 2022.
China has voiced its concerns about the situation, with Foreign Ministry spokesman Wang Wenbin emphasizing the Red Sea’s importance as an international trade route. Wang urged a halt to harassment and attacks on civilian ships, linking the escalation in the Red Sea to the spillover effect of the Gaza conflict. A swift resolution to the Gaza conflict, he suggested, could help alleviate tensions in the Red Sea.
Indonesian Exporters Association Chairman Benny Soetrisno reported a significant rise in transportation costs, up to 40 percent, due to the Red Sea crisis. Fitch Ratings noted that market conditions for European chemicals, reliant on Asian imports, have shifted, affecting the chemical supply chain.
For natural gas exporters like Qatar, the Suez Canal is crucial for shipping liquefied natural gas to Europe. ING, a Dutch investment bank, highlighted that if tensions in the Red Sea escalate, LNG trade flows may change, avoiding the region and opting for alternative routes. The implications of the Red Sea crisis continue to reverberate through global trade, impacting various industries and prompting concerns about the potential long-term effects on economic stability.
