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Red Sea attacks force rerouting of vessels, disrupting supply chains

Maersk said it was deeply concerned about the highly escalated security situation in the southern Red Sea and Gulf of Aden
Maersk said it was deeply concerned about the highly escalated security situation in the southern Red Sea and Gulf of Aden

Mounting attacks by the Iran-aligned Yemeni Houthi militant group on ships in the Red Sea are disrupting maritime trade as leading global freight firms reroute around the Cape of Good Hope to avoid the Suez Canal.

The group said it launched a drone attack on a cargo vessel in the area today, the latest in a series of missile and drone strikes on shipping which it says are a response to Israel's assault on the Gaza Strip.

Several major freight companies - including MSC and AP Moller-Maersk - have begun to sail around Africa, adding costs and delays which are expected to be compounded over the coming weeks, according to industry analysts.

About 15% of world shipping traffic transits via the Suez Canal, the shortest shipping route between Europe and Asia.

Combined, the companies that have diverted vessels "control around half of the global container shipping market," ABN Amro analyst Albert Jan Swart told Reuters.

"Avoiding the Red Sea will lead to higher cost due to longer travel time," Swart said.

Oil major BP also temporarily paused all transits through the Red Sea, a sign the crisis - which has mostly affected goods freight until now - might broaden to include energy shipments. Crude oil prices rose on those concerns today.

The Houthi attacks were also forcing companies to rethink their connections with Israel, with Taiwan's Evergreen Marine saying it had decided to temporarily stop accepting Israeli cargo.

"For the safety of ships and crew, Evergreen Line has decided to temporarily stop accepting Israeli cargo with immediate effect, and has instructed its container ships to suspend navigation through the Red Sea until further notice," it said in a statement.

The war between Israel and Hamas, which began on October 7, has sent shockwaves through the region and drawn in the US and its allies on one side and Iran-backed paramilitary groups in the Middle East on the other, threatening to cause a broader conflict.

The shipping attacks have prompted the US and its allies to discuss a task force that would protect Red Sea routes, a move that US and Israeli arch-foe Tehran has warned would be a mistake.

US Defense Secretary Lloyd Austin has today arrived for talks in the region.

Rico Luman, an analyst at ING, said the diversions were adding at least a week of sailing time for container liners. Typically, shipping goods from Shanghai to Rotterdam takes around 27 days via the Suez Canal.

"This will at least lead to delays in late December, with knock-on effects in January and probably February as the next round will also be delayed," Luman said.

While freight rates will likely increase on these longer voyages too, carriers at the moment are seeking ways to utilize excess capacity, said Zvi Schreiber, CEO of global freight platform Freightos.

"It is unlikely that rates will spike to levels experienced during the pandemic," said Schreiber, referring to the economic effects of Covid-19 from 2020.

Shipping stocks rose across European exchanges today after a jump on Friday on bets the shift away from the Suez Canal could boost rates.

The Suez Canal is an important source of foreign currency for Egypt. Some 90% of world trade is transported by sea.

The International Chamber of Shipping association said on Friday that the Houthi assault on shipping lanes, which began last month, was an "extremely serious threat to international trade" and urged naval forces in the area to do all they can to stop the attacks.

Michael Kingston, an international marine lawyer, said the attacks were at an organised phase at the moment and describing the situation as dangerous.

He said that this was a perfect storm of blockage, which has a knock on effect on fuel prices as there is extra mileage that ships have to take, and also goods would be delayed as a result.

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He predicted that this impact would drive up prices, which would see a knock on effect for consumers over Christmas and into early 2024.

Danish shipping company AP Moller-Maersk said it will pause all container shipments through the Red Sea until further notice.

"Following the near-miss incident involving Maersk Gibraltar yesterday and yet another attack on a container vessel today, we have instructed all Maersk vessels in the area bound to pass through the Bab al-Mandab Strait to pause their journey until further notice," the company said in a statement.

Maersk last Thursday said its vessel Maersk Gibraltar was targeted by a missile while travelling from Salalah, Oman, to Jeddah, Saudi Arabia and that the crew and vessel were reported safe.

Maersk on Friday denied a claim by Yemen's Iran-aligned Houthi movement that the militia had struck a Maersk vessel sailing towards Israel.

"The vessel was not hit," a Maersk spokesperson told Reuters in an emailed statement following the Houthi claim.

Maersk said the company was deeply concerned about the highly escalated security situation in the southern Red Sea and Gulf of Aden.

"The recent attacks on commercial vessels in the area are alarming and pose a significant threat to the safety and security of seafarers," it wrote in the statement.