People walk on the beach as a container ship crosses the Gulf of Suez towards the Red Sea before entering the Suez Canal, in Egypt on April 24, 2017.AMR ABDALLAH DALSH/Reuters
Attacks by militants from Yemen on commercial ships transiting the Red Sea on the way to and from the Suez Canal have disrupted global trade and pushed shipping prices sharply higher in recent weeks.
Freightos Baltic Global Container Index (FBX), which captures spot prices for 40-foot shipping containers on 12 routes, has nearly doubled in the past two weeks, from around US$1,300 in mid-December to just shy of US$2,600.
Since November, Iran-backed Houthi militants have been attacking container ships using drones, missiles and small boats, as part of a broadening conflict in the Middle East stemming from the Israel-Hamas war.
Canada, allies warn Houthi rebels to stop attacks on shipping vessels in Red Sea
Shipping companies, including MSC and Hapag-Lloyd, have responded by rerouting their vessels around the southern tip of Africa, away from the Suez Canal – the main maritime route between Asia and Europe, which normally handles nearly 15 per cent of global seaborne trade. Danish shipping giant Maersk followed suit this week after one of its ships was attacked last weekend.
The longer travel distance and higher fuel costs are pushing up freight rates, stoking concerns about inflation.
Despite the recent spike, shipping costs remain well below the levels seen at the height of the COVID-19 pandemic, when a shift in global buying patterns led to huge demand for containers and backlogs at ports. The FBX topped US$11,000 for a 40-foot container in September, 2021, before declining sharply through 2022.
Simon MacAdam and Lily Millard, economists with Capital Economics, said the recent jump in shipping costs is unlikely to have a meaningful impact on inflation.
“While the 50- to 100-per-cent increases in spot freight rates that have been announced this week sound big, they are still a long way off the sort of increases needed to move the needle at the macroeconomic level,” Mr. MacAdam and Ms. Millard wrote in a note to clients.
The bigger risk has to do with oil prices, they wrote: “The bottom line is that the risk to inflation from disruption in the Red Sea stems principally from a potential military escalation that ends up disrupting energy supplies, not the direct effects of higher shipping costs or a widespread shortage of goods.”
Mark Rendell