Historically recognized as essential trade arteries, the seas play a crucial role in global connectivity. One of the most important nerve points is the Red Sea, whose current situation has generated concerns and has a direct impact on the maritime freight market. This body of water, strategically located between Africa and Asia, has witnessed geopolitical tensions and logistical challenges that have altered the dynamics of freight transportation, thus affecting the global economy.

Geopolitics in the Red Sea:

The Red Sea region has historically been the scene of conflicts and tensions, and these geopolitical dynamics have left their mark on maritime transport. With countries like Yemen, Saudi Arabia and Egypt on its shores, competition for control and influence in this strategic region has been constant. Armed conflicts, such as the war in Yemen, have led to the imposition of stricter restrictions and security measures, slowing the flow of goods through the Bab el-Mandeb Strait, one of the key entrances to the Red Sea.

Impact on Maritime Safety:

Safety in the Red Sea has become a growing concern for shipping companies and shipowners. Incidents of piracy and attacks on commercial vessels have increased, forcing companies to take additional measures to ensure the safety of crew and goods. These security threats have not only increased operating costs, but have also influenced fleet routing decisions, avoiding high-risk areas and prolonging transit times.

The Suez Canal and its Fundamental Role:

The Red Sea is closely linked to the Suez Canal, a crucial artery connecting the Mediterranean Sea to the Red Sea. The political situation and tensions in the region have affected the smooth operation of this canal, as evidenced by the blockage of the Ever Given in 2021. This incident paralyzed maritime traffic for days, highlighting the vulnerability of maritime routes and generating economic repercussions. Worldwide.

Impact on Freight Costs:

Difficulties in the Suez Canal, where a significant portion of global trade traffic transits through the Red Sea, have significantly raised the costs associated with shipping. Shipping companies have been forced to invest in advanced safety technologies, additional insurance and alternative routes, thus increasing operating costs. These additional costs are inevitably passed on to customers in the form of higher freight rates, impacting importers and exporters who rely on efficient and cost-effective shipping.

Economic Challenges and Future Prospects:

There is not only talk of the departure of important players in global maritime trade, but also of the high cost for those who remain operating. According to information from CNBC, the cost of freight per 40-foot container from Shanghai to the United Kingdom was quoted at US$10,000 last Thursday, when a week before the rates were US$1,900 for a 20-foot container and US$2,400 for a 40 foot container.

During the Covid-19 pandemic, these freight rates reached above US$10,000, but experts point out that this increase was gradual. In the current situation in the Red Sea, the increases have been in real time, with fares rising, on some routes, between 100% and 300%. As of December 21 morning, 158 vessels were diverting from the Red Sea with more than 2.1 million cargo containers.

The Suez Canal, which accounts for around 30% of global container trade and 12% of total global trade, has been a crucial component in these disruptions. Even the rise in East-West spot rates in the coming weeks, forecast by maritime trade measurement expert Drewry, highlights the magnitude of the economic challenges facing the sector.

Inflation: the Big Worry over Red Sea Tension:

One of the great current concerns, as a result of the tension in the Red Sea, has to do with the inflationary effects that may arise from this situation in the world. Experts warn that inflation will depend on the duration of the ship's rerouting and the length of time carriers pay higher freight costs. Although uncertainty is latent, especially considering that in recent months the Consumer Price Index (CPI) in the world has been declining.

CNBC previously reported that MSC, the world's largest ocean carrier, was the first to increase rates from India by 30% to 40%. Security concerns in the Red Sea also threaten Liquefied Natural Gas (LNG) exports from the Middle East to Europe and US exports to Asia, also causing a rise in natural gas prices.

In an analysis, Drewry warned that Houthi attacks in the Red Sea could disrupt LNG shipments through the Suez Canal, as it remains a popular and preferred passage for shipments arriving in Asia from the Middle East and the United States. From January to November 2023, the Suez Canal recorded 50% of LNG transits, followed by COGH (28%) and Panama (22%).

“Drewry anticipates that East-West spot rates will increase in the coming weeks, due to the Red Sea and Suez situation,” the company said in its latest pricing report.

Outcome and Political Measures:

The outcome of what may happen to global trade is tied to what happens at the political and military level. For this reason, it is important to highlight in this context that the United States announced on December 20 that it would launch an operation to protect trade in the Red Sea from military attacks, a decision that has prompted shipping companies such as Maersk to affirm that they would resume its operation in this channel. These policy measures are presented as a light of hope amid the uncertainty currently surrounding global maritime trade.