Shipping Crisis: Suez Canal Freight Tonnage Tumbles Following Houthi Attacks

The Suez Canal, once flowing with a significant proportion of the world’s trade, has experienced a dramatic downturn, with freight volumes dropping by 45% following attacks on shipping routes by Yemen’s Iran-aligned Houthi movement. This sharp decline, over just two months, has sent ripples throughout global trade and signals potential increases in inflation, food security concerns, and greenhouse gas emissions.

According to the UN Conference on Trade and Development (UNCTAD), the Houthi attacks have led to a direct decrease in the number of ships passing through the Suez Canal, with the latest figure standing at 39% fewer than in early December. This has been further strained by disruptions in other critical trade routes due to various geopolitical and environmental factors – with the Russian invasion of Ukraine affecting grain and oil flows, and drought-induced low water levels causing transit decreases in the Panama Canal. The synergy of these disruptions is troubling for the global economy.

Impact of the Suez Canal Disruption

The Suez Canal is a chokepoint for global maritime trade, channeling between 12%-15% of it, including a quarter to a third of all containerized traffic. A closer look at the numbers indicates a staggering 82% fall in container shipments in mid-January compared to December figures. The liquified natural gas (LNG) sector has been even harder hit, whereas dry bulk saw a less dramatic impact.

Jan Hoffmann, UNCTAD's head of trade logistics, highlights the resulting concerns, notably increased shipping delays, rising costs, and greater emissions due to rerouted ships traveling longer distances – often at higher speeds – to maintain delivery schedules.

The Surge in Spot Container Rates

In the immediate wake of the Suez disruption, spot container rates noted their most significant weekly increase, with a jump of $500. This has impacted not only Asia-to-Europe trade lines but also alternative routes, such as the path to the US west coast, which has seen its rates more than double. Despite this increase, current rates are still trailing behind the peak levels experienced during the COVID-19 pandemic's height.

The Broader Economic Consequences

The long-term repercussions are still unfolding, with Hoffmann suggesting the spike in shipping costs, exacerbated by the Suez Canal setback, could heighten food prices – attributing approximately half of the price hikes since the Ukraine conflict to transportation expenses. However, the timeline for consumers to feel these effects in their daily shopping, from retailers like Ikea and Walmart, can extend up to a year.

In conclusion, the Suez Canal's operational downturn following the Houthi attacks is intensifying stress on an already strained global trade system. It's prompting economic challenges from the local to the global scale. The complexities of this situation are exemplified by the intricate interplay of affairs in Yemen, the repercussions on strategic global waterways, and how these factors combine to impact common goods and commodity prices worldwide.