The situation in the Red Sea is becoming very serious. This kind of news at the end of the year is certainly not encouraging, but all the signs are that the next few months will be very difficult for many industries.
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What exactly is at stake? About the move by the major maritime shipowners to halt shipping through the Suez Canal. As many as four of the five major players in the industry have decided to do so.
A key maritime route
The reason for this decision is the attacks by Yemeni Huti militants on ships that pass through the aforementioned Suez Canal every day, which is one of the most important sea routes in the world.
The canal, which connects the Mediterranean to the Red Sea, was opened in 1869 and its importance has grown steadily since then. Today, around 12 per cent of global trade passes through it, and its strategic location is crucial to the supply chains and economies of many countries.
Moreover, the Suez Canal is the main route for the transport of oil from the Persian Gulf to Europe, and although the price per barrel is still at the level it was before the shipowners' decision, it cannot be ruled out that we should expect a correction in this aspect too.
Giants say 'enough'
The inability to ensure safety on the route has remained a concern for shipowners for some time. However, the measure has finally run its course, which is why the four giants: CMA, ZIM, MSC and CGM have decided that it is time to move on to concrete action.
The decision to abandon the Suez Canal route means that all vessels flying the flags of these shipowners will henceforth take a circuitous, much longer and obviously more costly route.
As Reuters reports, the length of the sea crossing for these ships will increase by as much as 7,000 kilometres, which, translated into a timeframe, means about ten extra days on the water.
The consequences will be serious
Such a serious lengthening of container ship routes will have very serious consequences. For we remember what happened in the Suez Canal a few years ago, when the route was blocked by the ship Ever Given, which ran aground while trying to manoeuvre. At the time, the canal was blocked for only six days, but this was already enough to lead to gigantic losses.
The Suez Canal Authority estimated that, during the blockade, as many as 422 ships could not use the route, which should have carried 26 million tonnes of various cargoes. Egypt alone was said to have lost around $15 million during the blockade, while the canal's management considered its losses to be as high as $916 million and demanded such compensation.
The amount was eventually reduced to $550 million, but the final value of the compensation worked out through the settlement was not disclosed.
Strong entry into 2024
Today, the shipowners themselves have chosen other maritime routes, but the consequences will also be severe. The prolonged journey of goods means that already severely damaged supply chains, will once again face problems.
Key goods and commodities will take longer to travel to Europe or North America. And if we add to this the uninspiring situation in the Panama Canal, it is really difficult to look at the beginning of 2024 with optimism. Delays, increases in the price of goods, or even a lack of them on shop shelves? This is, unfortunately, a vision for which we should prepare.
