The world is witnessing a surge in the cost and time of shipping goods from Asia to Europe, as a result of the ongoing attacks in the Red Sea by Yemen-based Houthi militants. The European Commissioner for Economy, Paolo Gentiloni, revealed that the shipping cost increased by 400% and the time by 10-15 days due to cargo diversion. This has serious implications for the global trade and economy, as well as the security and stability of the region.
The Attacks and Their Consequences
The Houthi rebels, who control most of northern Yemen, have been launching missile and drone strikes on commercial ships traversing the Red Sea, one of the world’s busiest waterways. According to the International Maritime Organization, amid the attacks in the Red Sea, 36% fewer ships move through the Suez Canal, and cargo is reduced by more than 60%. The Suez Canal is a vital link between Asia and Europe, as it allows ships to avoid the longer and more expensive route around Africa.
The attacks have also increased the risk and cost of ship insurance, as well as fuel costs, as ships have to take alternative routes or increase their speed to avoid being targeted. According to some estimates, the insurance premium for a single voyage in the Red Sea can reach up to $200,000, compared to $30,000 before the attacks. The fuel cost can also increase by 15-20% due to the longer distance and higher speed.
The increased cost and time of shipping goods from Asia to Europe have a negative impact on the global trade and economy, especially amid the COVID-19 pandemic, which has already disrupted the supply chains and demand patterns. According to the World Trade Organization, the volume of world merchandise trade is expected to grow by 8% in 2023, after falling by 5.3% in 2022. However, this projection is subject to high uncertainty and depends on the evolution of the pandemic and the policy responses.
The Responses and Their Challenges
The international community has been trying to address the situation in the Red Sea and to prevent further escalation of the conflict. The United Nations has been mediating between the warring parties in Yemen, namely the internationally recognized government and the Houthi rebels, to reach a political solution and a ceasefire. However, the talks have been stalled and the violence has continued, with the Houthis rejecting the latest UN proposal in February 2023.
The United States, the European Union, and other countries have also been calling for an end to the hostilities and the attacks on the civilian ships. They have also been providing humanitarian and security assistance to Yemen and the neighboring countries, such as Saudi Arabia and the United Arab Emirates, which are leading a military coalition against the Houthis. However, the US and the EU have also faced criticism for their arms sales and support to the coalition, which has been accused of human rights violations and war crimes in Yemen.
The shipping industry and the business sector have also been taking measures to cope with the situation and to mitigate the risks and losses. Some of the measures include:
- Increasing the security and surveillance of the ships and the cargo
- Using alternative routes or ports, such as Oman, Djibouti, or Egypt
- Diversifying the sources and destinations of the goods
- Increasing the inventory and the buffer stocks
- Passing the extra cost to the consumers or absorbing it
However, these measures are not sufficient or sustainable in the long term, as they entail additional costs and challenges. For instance, using alternative routes or ports can increase the congestion and the environmental impact, while passing the extra cost to the consumers can reduce the demand and the competitiveness.
The Outlook and The Recommendations
The situation in the Red Sea and its impact on the global trade and economy are likely to persist and worsen, unless a comprehensive and lasting solution is found for the conflict in Yemen and the region. Therefore, it is imperative that the international community, the regional actors, and the private sector work together to achieve the following objectives:
- Ending the attacks on the civilian ships and ensuring the freedom and safety of navigation in the Red Sea
- Resuming the political dialogue and the peace process in Yemen and addressing the root causes and the humanitarian crisis of the conflict
- Enhancing the cooperation and the coordination among the stakeholders and the partners involved in the trade and the shipping industry
- Developing and implementing the best practices and the standards for the security and the resilience of the supply chains and the trade flows
- Promoting the sustainable and inclusive development and the integration of the region and the world
The Red Sea is not only a strategic and economic asset, but also a shared and common heritage for the humanity. It is the responsibility of all to protect it and to use it for the benefit of all.
