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US and British aircraft, warships, and submarines carried out dozens of strikes against Houthi targets across Yemen on Thursday, Reuters reported last week. The strikes — targeting military bases near airports in Sanaa and Taiz, a naval facility at Yemen’s Hodeidah Port, and military positions in Yemen’s Hajjah Governorate — come in response to months of attacks on international shipping by the Houthis and look to curtail their abilities to endanger shipping.
The Houthis have vowed retaliation: Retaliation will be “imminent,” senior Houthi leader Mohammed Ali Al Houthi told tens of thousands of people gathered in Yemen’s capital Sanaa to protest the bombings, Bloomberg reported on Friday.
Was this the tipping point? Last week US and British warships repelled the ‘largest ever’ Houthi attack to date, downing some 21 drones and missiles fired by the Iranian-backed militia towards the southern Red Sea, Reuters reported. A Houthi spokesperson said that the attack was in retaliation for a previous incident that had seen 10 Houthi gunmen killed and that it targeted a US vessel that was “providing support” to Israel, the newswire wrote. US Central Command reported no loss of life or damage to property as a result of the attack, in what it counted as the 26th Houthi attack against shipping lanes since their campaign began mid-November, the newswire wrote.
Saudi Arabia is calling for restraint: “The Kingdom of Saudi Arabia is following with great concern the military operations in the Red Sea region and the airstrikes that targeted a number of sites in the Republic of Yemen,” KSA’s foreign ministry said in a statement released on X on Friday. The Kingdom reaffirmed the right to freedom of navigation in international waters while calling on actors to practice “self-restraint and avoid escalation”, the statement added.
IMPACT TO TRADE-
Oil tankers are now steering clear of the Red Sea as the latest American-led strikes increase security risks, Reuters reported on Friday, citing shipping data. The US-led Combined Maritime Forces has warned vessels to avoid the Bab El Mandeb strait and several vessels were seen making turnarounds on Friday to avoid the Red Sea area, LSEG and Kpler tracking data showed. The recent development marks an abrupt reversal to a recent trend which had seen Red Sea tanker traffic remain unexpectedly strong in the midst of the Houthi crisis.
Retailers are scurrying to alternatives for seasonal stock up: Global retailers are turning to air freight and railway alternatives to Red Sea shipping routes as they rush to stock up before factories in China close for the Lunar New Year, Reuters reported last week, citing executives and experts. Another European retailer told the newswire that it was putting off marketing campaigns for some goods until it had secured stocks. China’s Lunar New Year holiday on 10 February will see factories there close for up to one month, leading exporters to scramble to ship as many goods as possible beforehand. However, reroutes due to Red Sea disruptions mean delays and lower freight capacity to China, entailing delays for products Western retailers wish to make available in early Spring.
And Europe’s manufacturing sector is starting to feel the pinch: Tesla and Volvo are halting operations at some of their factories in Europe due to component shortages, Reuters reported on Friday. The development represents the first indication that disruptions in the Red Sea are beginning to affect manufacturing in Europe. The disruptions represent the worst challenge to supply chains since the pandemic and threaten upending global economic recovery, the newswire added.
Firms are also feeling grated by the higher rates and surcharges carriers are levying due to the reroutes, the Wall Street Journal reported last week. “What every shipper is trying to figure out is if the current proposals are in line with the carrier’s added costs, and not simply a move to offset softer rates in other lanes or raise rates across the board,” a retail executive told WSJ.
Will it lead to an uptick in air freight? Continued upheaval in the Red Sea could see a surge in demand for air freight in “two to three weeks,” German logistics giant Schenker told Reuters on Friday, adding that it has secured added air freight capacity to manage the anticipated surge. Multimodal transport could provide the best solution, whereby goods are shipped by sea from China and unloaded before choke points to be hauled by air freight, Schenker said.
SUEZ CANAL REVENUES PLUMMET-
Suez Canal revenues since the beginning of the year are down 40% y-o-y, Egypt’s Suez Canal Authority (SCA) head Osama Rabie told Kol Youm on Thursday (watch, runtime: 24:33). The number of vessels transiting the canal dropped 30% y-o-y during the first 11 days of the year, with 544 vessels making the transit during the period compared to 777 in 2023. Cargo loads also declined 41% y-o-y during the same period, Rabie said.
But the canal is definitely still open for business: Rabie rebuffed rumors circling in maritime communities that the Suez Canal might see a shutdown due to Red Sea disruptions, according to a statement released on Friday. “Navigation is going as per normal in both directions,” Rabie said.
Looks like things are set to get worse before they get better: Efforts to alleviate the security concerns of international shipping companies — via fee reductions and other incentives — have failed, Rabie added to Kol Youm. Traffic via the canal is set to see further declines after a warning by the US and UK militaries to avoid the conflict-stricken route, Reuters reported. A further deterioration in the situation could see the canal “effectively close for all ships,” Bimco analyst Niels Rasmussen told Bloomberg.
MARKET REAX-
Oil rallied 1% on Friday as American-led strikes on Houthi targets saw tankers reroute away from the region, Reuters reported on Friday. Brent crude futures rose 1.1% to USD 78.29 a barrel while West Texas Intermediate crude climbed 0.9% to USD 72.68. Despite the fact that the diversions have hiked prices and boosted transit times, supplies have so far been unaffected, softening some of the gains in prices, the newswire wrote citing industry experts and analysts.
Container shipping rates surged as American-led strikes stoked fears of prolonged disruptions to regional trade routes, Reuters reported on Friday. The benchmark Shanghai Containerized Freight Index jumped 16% w-o-w on Friday, with the index having climbed 114% as of mid-December. Meanwhile shipping rates for 20-foot containers on the Shanghai to Europe route hiked 8.1% w-o-w to USD 3.1k on Friday, and 40-foot container rates to the US West Coast leaped 43.2% w-o-w to USD 4k, the newswire said citing Friday numbers by Clarksons.
The attacks have had a measurable impact on global trade: Global trade fell 1.3% from November to December 2023 as attacks in the Red Sea disrupted merchant vessel passage across the critical trade artery, Reuters reported last week, citing German economic institute IfW Kiel. 200k containers are being transported via the Red Sea per day, down from 500k in November, and reroutes have seen journeys between European and Asian markets stretched by some 20 days. European exports and imports for December were down 2% and 3.1% m-o-m, while US exports and imports saw declines of 1.5% and 1% for the period. China bucked the trend, with its exports and imports rising 1.3% and 3.1%, but this was likely due to ramp ups due to the upcoming Chinese New Year, IfW Kiel said.
