Global Commerce at Risk of Being Upended by Red Sea Turmoil

Most major shipping lines have paused or diverted travel from the Red Sea after a series of attacks on container ships there by the Houthi militant group. The decisions, which the companies say put a focus on crew safety, could upend global commerce.

Oil, natural gas, grain and most manufactured goods with global destinations travel by container ships, with many transiting through the Suez Canal before reaching their final ports in Europe, Asia and beyond. Between 10% and 15% of all global trade passes through the Red Sea each year, or roughly $1 trillion in goods annually.

A.P Moller-Maersk announced Tuesday that it is rerouting its ships around Africa via the Cape of Good Hope, a diversion that could tack on as many as 14 days to shipping times. The Danish shipping and logistics company is the second largest in the world, with a fleet of around 740 ships. 

“Routing vessels via the Cape of Good Hope will ultimately deliver faster and more predictable outcomes for our customers and their supply chains,” Maersk said in a statement. As of Monday, Maersk had about 20 vessels that had paused transits. 

“For all future vessel sailings planned through the area, a case-by-case assessment will take place to determine whether adjustments need to be made — including diversions via the Cape of Good Hope and further contingency measures,” the company said.

Maersk, Hapag-Lloyd, CMA CGM, Yang Ming Marine Transport, Evergreen and MSC Mediterranean Shipping Co., the world’s largest container line, temporarily halted transit through the Red Sea following attacks on vessels over safety concerns, and have since announced that they will be rerouting several ships around the Cape to try to help keep freight moving. 

“It has the potential to be a huge economic impact,” John Stawpert, senior manager of environment and trade for the International Chamber of Shipping, told the Associated Press on Monday. Stawpert noted that 40% of trade between Asia and Europe passes through the critical waterway.

During a visit to the Middle East, U.S. Defense Secretary Lloyd Austin and Joint Chiefs Chairman Gen. CQ Brown announced the formation of an international task force to deal with the growing threat from the Houthis — a move that underscores the importance of securing the region for the world’s economies.

The Houthis, an Iranian-backed Yemeni rebel group, have targeted Israel-linked ships in the Red Sea since it launched its war in Gaza following Hamas' Oct. 7 attacks, claiming responsibility for three attacks so far. 

As of Monday, 67 container ships have been diverted around the Cape of Good Hope and 75 are delayed and awaiting orders, Ryan Petersen, founder and chief executive of Flexport, said in a post on X.

Petersen previously told The Messenger that 30% of all global containerized freight moves through the Suez Canal, with each ship carrying around $1 billion in goods. These bottlenecks could wipe 25% of global effective capacity from the market, he said.

Oil and gas giant BP said Monday it will also pause shipments through the Red Sea amid growing security concerns.

Despite fears of spiking energy costs, however, oil prices have been slow to respond. Benchmark Brent crude prices rose by about 1% on Monday, but leveled out on Tuesday, trading at around $78 a barrel. This remains below this year’s highs, when oil traded at nearly $100 per barrel.

Geopolitical unrest in the Middle East and Europe, combined with uncertainty and markets still in recovery from the Covid-19 pandemic, could send prices higher, according to Torsten Slok, chief economist at Apollo Global Management.

“Rising uncertainty in the Suez channel combined with the global economy rebounding because of easier financial conditions could put upward pressure on goods inflation over the coming months,” Slok told Bloomberg.