The October 7 Hamas attack on Israel has resulted not only in a violent conflict in the Middle East, but also in a significant disruption to global trade. One of the most important sea routes connecting Asia and Europe has been virtually blocked, impacting shipping. One year after the conflict began, and which continues to intensify, logistics and shipping companies still cannot foresee a return to pre-war normality between Israel and Hamas.
The Houthis, a Yemeni group backed by Iran, have expanded the conflict to the Red Sea, turning that route into yet another battlefront. By attacking vessels from countries they consider allies of Israel, the group has disrupted the transit of ships through the Suez Canal, a vital point of international trade.
The route, which runs through Egypt, is responsible for about 15% of global trade and 30% of container shipping, according to the International Monetary Fund (IMF). However, the Houthi attacks have caused a sharp drop in traffic.
According to Jan Hoffmann, an expert at the United Nations Conference on Trade and Development (UNCTAD), the Houthis’ control over the Bab El Mandeb Strait in the Red Sea has culminated in a series of attacks on commercial vessels, the first of which was in November, when a coal vessel was sunk by explosive drones. Since then, approximately 80 commercial vessels have been attacked, intensifying the crisis to the point where it has involved military responses from countries including the United States and the United Kingdom.
This unexpected involvement of the Houthis in the conflict between Israel and Gaza has had devastating effects on global supply chains, which were already weakened by the impacts of the COVID-19 pandemic. In 2021, the increase in maritime freight costs was one of the factors that drove up global inflation, according to the IMF.
The current crisis in the Red Sea, while not reaching the levels of paralysis seen during the pandemic, remains a significant threat. Between November and February, commercial traffic through the Suez Canal fell dramatically, falling from 38 million tonnes to 16 million tonnes.
The change in routes, which now include the Cape of Good Hope as an alternative to the Red Sea, has added weeks to journeys and thousands of kilometres to routes to Europe. According to the IMF, countries such as Jordan, Saudi Arabia, Sudan and Yemen could see their exports fall by up to 10%. Egypt in particular, which relies on the Suez Canal for 1.2% of its GDP, is seeing an economic downturn, with growth forecasts cut by 0.6 percentage points and inflation worsening due to a shortage of foreign currency.
Companies like Maersk, one of the world’s largest container shipping companies, are struggling to meet new logistics demands, needing more vessels for longer routes. This, combined with an overall reduction in shipping capacity, has driven up freight rates by as much as 200% since the end of 2023.
In addition to the direct impacts on trade between Asia and Europe, the increase in freight rates also affected routes to the West Coast of the United States, exacerbated by droughts that limited the capacity of the Panama Canal.
The combination of crises in the Black Sea, the Red Sea and the limited capacity of shipping channels, coupled with port strikes, has caused global freight rates to rise substantially, according to UNCTAD. The increase in the distance traveled by ships and the consequent reduction in transport capacity are among the main factors behind this increase.
Experts say the situation can only be resolved through political solutions, something that does not appear to be on the horizon. Meanwhile, the global container shipping market continues to be deeply affected, with no clear solution in sight.
