By PETER EAVIS and LIZ ALDERMAN
Prior to this year, German container ship captain Tobias Kammann had only navigated around the southern tip of Africa once, and the emptiness of those less-frequented waters left him feeling quite isolated.
Now, however, there are so many vessels in that area, he noted, that “it resembles the autobahn.”
In order to transport goods between Asia and Europe, global shipping companies have historically passed through the Red Sea and the Suez Canal. However, a year ago, the Houthi rebels in Yemen started targeting ships in the Red Sea using drones and missiles, compelling shipping companies to reroute their cargo around the Cape of Good Hope at the southern tip of Africa, a journey that is approximately 3,500 nautical miles longer and takes an additional 10 days.
Naval fleets led by Western nations were dispatched to the Red Sea to suppress these assaults, which the Iran-supported Houthis claimed were a reaction to Israel’s conflict with Hamas in the Gaza Strip. Despite these military efforts, the assaults persisted, and commercial vessels have generally avoided the area. Analysts on Middle Eastern affairs predict that the Houthis will continue their attacks, even as Iran’s influence wanes following the weakening of Hezbollah in Lebanon and the fall of Bashar Assad’s regime in Syria.
It feels as though the shipping industry has been transported back to a time before the Suez Canal’s inauguration in 1869.
“This represents one of the most critical challenges the shipping sector has encountered in quite some time,” stated maritime historian Salvatore Mercogliano, who is also an associate professor at Campbell University in North Carolina.
On average, 136 container ships per week have navigated around the Cape of Good Hope this year, a significant rise from the 40 that traversed the route before the Houthi attacks began, according to information from Lloyd’s List Intelligence, a maritime analytics firm.
Now, as this major diversion enters its second year, importers, the environment, and countries like Egypt that heavily depend on shipping revenues are facing increasing costs. The pressure on shipping is likely to intensify if companies rush to secure imports ahead of any tariffs that might be enacted by the next Trump administration.
Ocean freighters have bypassed the Suez Canal in the past. It was closed from 1967 to 1975 amid Middle Eastern conflicts. However, during that period, Western economies were much less dependent on imports from Asia. Prior to the Houthi attacks, the canal facilitated 10% of global trade and over 20% of international container transport, according to the United Nations.
The turmoil in the Red Sea emerged just as importers were benefiting from some of the lowest shipping rates in years, attributed to an oversupply of freighters. This excess resulted from shipping companies ordering a large number of new vessels in 2021 and 2022, when they were experiencing considerable profits from the pandemic-related trade surge.
However, the rerouting around Africa has escalated the demand for ships — more vessels have been allocated to sustain regular service along the extended route — leading to a spike in rates. The cost of transporting a container from Asia to Northern Europe has risen by 270% in the past year, according to Freightos, a digital shipping marketplace.
The demand for vessels has driven up rates across the board. For example, shipping a container from China to a West Coast port in the United States is up by 217% over the past year.
Certain importers have experienced even bigger surges in costs.
Vassilis Korkidis, president of the Piraeus Chamber of Commerce in Greece and leader of a maritime electronics firm, reported that he paid $8,700 for a 40-foot container of goods shipped from Shanghai in September, a fourfold increase from a year ago due to the extended journey.
“We are facing significant delays and an astonishing rise in transportation expenses,” he remarked.
Economists assert that the Houthi attacks have sparked inflation globally, and importers worry that these elevated costs could become a lasting phenomenon.
“We need to ensure that governments worldwide do not regard this as a new status quo,” urged Steve Lamar, president of the American Apparel and Footwear Association.
Last month, the organization urged President Joe Biden to take further action against the Houthis, who have conducted around 130 assaults on commercial vessels in the past year, according to data from the Armed Conflict Location and Event Data Project, a crisis monitoring organization.
The surge in shipping rates has significantly outstripped the rise in expenses at major shipping firms, substantially boosting their profits. Maersk, the Danish shipping titan, reported operating earnings of $4 billion in the third quarter, an increase from $1.1 billion one year prior. Maersk declined to provide further comments.
Crews aboard commercial ships are experiencing the challenges of lengthier voyages.
Kammann, captain of the 1,309-foot-long Hanoi Express for Hapag-Lloyd, stated that his ship did not dock at any port for as long as six weeks while navigating around Africa. To alleviate the monotony, he has attempted to create more engaging training exercises and organize events such as barbecues and karaoke for his crew. “I have to find ways to make it more engaging for them,” he explained.
The diversion has also adversely affected economies.
Large container vessels can pay up to $1 million to traverse the Suez Canal, as noted by industry experts. Data from Lloyd’s List indicates that access through the canal has plummeted by 70%, resulting in a loss of revenue for the Egyptian government at a time when its budget constraints are severe. According to the International Monetary Fund, receipts from the Suez Canal at Egypt’s central bank fell by nearly 60% in the first quarter of 2024, compared to the previous year.
Before the Houthi assaults, ships exiting the Suez Canal typically docked first in Piraeus, Greece, where they transferred goods to feeder vessels for various Mediterranean ports, including Valencia in Spain. Now, vessels head to Valencia prior to reaching Piraeus, resulting in an initial sharp decline in cargo for Piraeus.
Traffic has largely rebounded, stated Angelos Karakostas, deputy CEO of Piraeus Port Authority. “Ships continued to arrive at Piraeus—they simply took longer to get there,” he said.
The environment is also facing challenges.
Increased deployment of vessels over greater distances consumes more fuel, complicating efforts for shipping companies to lower their carbon output. Inverto, a supply chain consulting firm, estimates that the Red Sea turmoil has led the industry to emit an additional 35.7 million metric tons of carbon dioxide in the past year, the equivalent of emissions produced by 7.8 million vehicles.
