Red Sea turmoil sends economic shockwaves far and wide

Shipping disruptions set to last for months or more, with risk of higher global inflation

Two months of missile, drone and hijacking attacks against civilian ships in the Red Sea have caused the biggest diversion of international trade in decades, pushing up costs for shippers as far away as Asia and North America.

The disruption is spreading, fuelling fears of a broader economic fallout.

Repeated rounds of retaliatory strikes by the United States and its allies, as well as a multinational naval operation to patrol the waters, have not stopped the assaults by the Houthi militants that followed the start of the Israel-Hamas war.

With sailors demanding double pay and insurance rates skyrocketing, shipping lines are steering clear of a waterway that normally carries 12 per cent of the world’s seaborne trade.

More than 500 container ships that would have sailed through the Red Sea to and from the Suez Canal, carrying everything from clothing to toys to auto parts, are now adding two weeks to their routes to travel around the Cape of Good Hope at the southern tip of Africa, according to Flexport.

That is about a quarter of all the container shipping capacity in the world, according to the digital logistics platform.

Mr Vincent Iacopella, a logistics expert at Alba Wheels Up, said: “We haven’t seen costs increase this quickly since the last crunch in the pandemic.”

Many of the underlying bottlenecks in supply chains remain, even though prices dropped in 2023 as the Covid-19 disruptions faded, he said.

According to Freightos, a cargo booking company, the cost of shipping containers from China to the Mediterranean Sea has more than quadrupled since late November.

Shipping lines, as well as those that carry oil, say they are planning for the upheaval to last for months or more, with vessels for the longer route booked as far out as the summer.