How the Red Sea attacks affect shipping

How the Red Sea attacks affect shipping

EXPLAINER: A detour around South Africa and delays are expected for goods transport until Houthi rebel attacks are tamped down

Starting from mid-November 2023, the Houthi rebel group based in Yemen and backed by Iran has been conducting numerous attacks on commercial ships in the Red Sea, displaying no indication that they will relent.

The Houthi attacks, mainly directed at ships with links to Israel, led to the establishment of a multilateral coalition by the US in December to protect commercial traffic from these assaults.

Early on Jan 12, the US and UK launched a series of strikes against the Houthi rebels in Yemen, aiming to safeguard shipping from attacks by the Iran-aligned movement.

The strikes have heightened concerns about the Mideast conflict spreading from the war in Gaza, drawing in Iran's allies such as Lebanon and Syria.

Q: Who are the Houthis? Why have they attacked ships in the Red Sea?

The Houthis, also known as Ansar Allah (supporters of God), are an armed faction exercising control over the majority of Yemen, including the capital Sanaa, and some western and northern areas close to Saudi Arabia.

Originating in the 1990s, the Houthis gained prominence in 2014 by rebelling against Yemen's government, compelling its resignation and triggering a severe humanitarian crisis.

Subsequently, with support from Iran, the group engaged in years of conflict against a military coalition spearheaded by Saudi Arabia. Despite the ongoing hostilities, both sides have made repeated attempts to engage in peace talks.

The Houthis assert their strikes, ostensibly aimed at commercial and military ships with potential Israeli ties, serve as a means to pressure Tel Aviv to cease its conflict in Gaza, initiated on Oct 7, 2023. However, analysts argue that in practice the Houthi attacks have been indiscriminate in terms of their targets.

Houthi attacks in the Red Sea increased in November and December, and following strikes by the US-UK coalition on Yemen on Jan 12, the Houthis have declared their intent to continue targeting Israel-linked ships.

Q: How do the attacks affect global trade and maritime transport?

According to Chaichan Chareonsuk, chairman of the Thai National Shippers' Council (TNSC), some ships are being rerouted to the Cape of Good Hope, increasing the transport distance from 18,500 kilometres to 25,002 km. The travel time is extended by 10-15 days.

Shipping lines may impose additional charges on exporters and importers because of higher fuel costs.

The attacks are affecting freight rates for goods heading to Europe. Shipping lines are expected to increase vessel charges, including surcharges such as the bunker adjustment factor, low sulphur surcharge and congestion, said Mr Chaichan.

Port congestion issues may arise, affecting neighbouring ports and hampering global shipping schedules, he said.

Goods pending transport to Europe will definitely experience delays and marine insurance does not cover transport delays, said Mr Chaichan.

Products from Thailand destined for the Middle East, Europe, North Africa and parts of the eastern US face unavoidable higher costs if rerouted around the Cape of Good Hope, he said.

Freight rates from Thailand to Europe may increase by up to US$3,000-5,000, with a space shortage possible on certain routes.

Combined with China's efforts to accelerate exports, freight rates are anticipated to rise further, said Mr Chaichan.

The detour around the Cape of Good Hope also unveiled facilitation issues, causing repeated transit time problems and making exporters unable to honour their plans because of these challenges, he said.

Q: Do the attacks have any impact on Thailand's export activities?

Mr Chaichan said the attacks are expected to affect businesses in three aspects: the cost of maritime transport, the cost of fuel oil transported through the Suez Canal, and higher product prices based on delays or smaller quantities of transported goods.

The proportion of total Thai exports to the EU and the Middle East is 8% and 3.8%, respectively.

He said the attacks may affect key items sent to Europe, such as processed chicken, air conditioners and components, electrical circuit boards, computers and computer parts, rubber products, and automotive parts.

The conflict may also affect goods sent to the Middle East, with key items comprising automobiles and auto parts, rice, canned and processed seafood, rubber products, air conditioners and components, machinery and components, refrigerators, freezers and parts, and wood and wooden products.

The situation warrants close monitoring, said Mr Chaichan.

Q: If the attacks continue, which industries would likely experience adverse effects? Are price hikes possible for Thai consumers?

The Red Sea's Bab al-Mandab strait is a crucial route for global trade, accounting for about 10% of the world's crude oil shipping.

Other significant goods that flow through the strait include commodities, agricultural products and industrial goods.

Crude oil prices are likely to increase if there is a shortage from the Middle East.

Prices of other commodities and consumer products such as food and electronics are also expected to rise based on shortages of these items, he said.

Q: How should agencies and exporters adapt to the situation?

The Commerce Ministry recently hosted a meeting with relevant agencies from the public and private sectors, including the TNSC, which has proposed five measures to alleviate the impact on importers and exporters.

These proposals received offers of cooperation from shipping companies, said the council.

Preliminary steps for exporters include negotiating with customers regarding trade terms, exploring alternative destination ports, and seeking information from various shipping lines to find the most suitable service. One option is delaying shipments until the situation eases.

Traders may need to explore alternative markets in the short term to divert goods away from European or Middle Eastern markets, or delay orders to manage inventory without incurring excessive costs, according to the TNSC.

Q: What are the suggestions to ease the impact on exporters?

In response to the unrest in the Red Sea, the TNSC talked with various shipping lines and proposed five measures to assist importers and exporters:

1. Maintain the original freight rates for goods pending transport, as per the agreed-upon shipping contracts.

2. Gradually increase new freight rates based on the actual costs.

3. Negotiate with port authorities to extend the free time to 21 days, reducing container storage costs at ports and providing additional time for management.

4. Ensure an adequate number of Asia-Europe vessels to achieve a balance between vessel capacity, container quantities and products in the market.

5. Provide up-to-date information on shipping routes, travel times, freight rates and additional charges.

Mr Chaichan insists there is not a container shortage, but rather a vessel shortage, meaning a shortage of available space for certain shipping lines during specific periods.

The quantity of empty containers and heavy containers entering the country is higher than the quantity of containers being exported, so there is not much concern about empty containers in Thailand, he said.

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