Attacks in the Red Sea could have a ripple effect on shippers (and consumers) in Canada

Christopher Reynolds, The Canadian Press

Posted on Friday, January 5, 2024 3:12 pm EST

Last updated Friday, January 5, 2024 3:49 pm EST

MONTREAL – Canadian shippers and consumers could soon feel the domino effect of attacks on cargo ships in the Red Sea, as freight rates rise and delivery times lengthen.

Shipping companies around the world are moving away from the key trade corridor after Houthi militants in Yemen stepped up attacks on commercial ships in the region to protest Israel’s military campaign in the Gaza Strip.

Shipping giant Maersk said on Friday it plans to continue diverting all Suez Canal-bound vessels around Africa’s Cape of Good Hope “for the foreseeable future,” following an earlier pause in the waterway linking Asia and Europe.

Other shipping companies, including MSC, the world’s largest container shipper, Hapag-Lloyd and Evergreen, have also suspended passage through the Red Sea Strait of Bab el-Mandeb, the focal point of dozens of attempted missile attacks. and drones against cargo ships.

The rerouting adds one to three weeks and hundreds of thousands of dollars in additional fuel and labor costs per trip, resulting in potential price increases for wholesale and retail products. A trip from Singapore to Rotterdam in the Netherlands would take 26 days, while traveling around the southern tip of Africa would add 10 more, according to Werner Antweiler, chair of international trade policy at the University of British Columbia’s Sauder School of Business.

Europe will feel the impact most directly, says Yan Cimon, a business professor at Laval University. But consumer goods and some manufacturing parts bound for Canada also arrive through the canal, which carries about a third of the world’s container traffic.

“We obviously have important trade with Europe and we also import some products from Asia that can go through Suez,” Cimon said.

“The carriers themselves will also see great pressure on their shipping capacity, because as the ships are tied up on longer routes, they cannot be used on other routes.”

Global container shipping rates rose 61 percent in the last week alone, with increases also in service between Asia and North America, according to data from Drewry, a maritime industry research firm. Since Nov. 30, global rates have increased 93 percent to $2,670 per 40-foot container from $1,382.

A severe drought in Panama has amplified the impact of the Red Sea prohibited zone.

Many shipping services between Asia and the east coast of North America had recently switched to the Suez Canal, rather than traveling the usual route across the Pacific Ocean and through the Panama Canal. The drought has sapped water from the canal, which is used to raise and lower ships in a dozen locks, prompting officials to reduce the number of ships they let through the Central American waterway. The tight spaces have increased rates and bottlenecks in the critical trade conduit between the Atlantic and Pacific oceans and pushed some oil tankers and container ships to stay away from backup by taking longer routes, usually through the Suez Canal.

Now, the Red Sea crisis is impacting shipping costs even more. Since early December, rates have risen 86 percent for cargo shipped from Southeast Asia to U.S. East Coast ports, and two-thirds from North Asia, according to data provider S&P Global Platts.

Even for cargo bound for the U.S. West Coast, rates rose 81 percent from Southeast Asia and 78 percent from North Asia, illustrating the ripple effects across the shipping world. .

“You could say that Canada is somewhat fortunate to be geographically dependent on North American and other global supply chains. However, that does not mean we are not at risk,” Cimon said.

This report by The Canadian Press was first published Jan. 5, 2024.

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