Maersk, one of the world’s leading shipping companies, has announced a suspension of shipping activities through the Red Sea and Suez Canal “until further notice.” The move comes in the wake of an attack on one of its vessels and reflects growing concerns about security in the region.
International shipping giants, including Maersk, Hapag-Lloyd, Evergreen Line, and Mediterranean Shipping Company (MSC), are expressing worry over attacks in the Red Sea. Tensions in the area are leading to a prolonged suspension of transits through the strategic trade route.
Economic impact
A sustained campaign targeting commercial vessels could have far-reaching consequences on the global economy. Delays in the delivery of goods, fuel, and food, coupled with potential price increases, could disrupt supply chains and impact markets worldwide.
Therefore, Maersk initially imposed a 48-hour pause in transits through the Red Sea following the attack on the Maersk Hangzhou. However, the company has now extended the suspension as it conducts an ongoing investigation into the incident. In some cases, vessels are being rerouted around the Cape of Good Hope in South Africa.
The situation has led to a significant number of diversions for Maersk. More than 100 of its vessels that are scheduled to sail in the coming weeks are being affected. Other major shipping firms have also opted to avoid the critical waterway due to security concerns.
Suez Canal’s crucial role
The Suez Canal, connecting the Red Sea to the Mediterranean, typically handles up to 30 percent of global container trade. The suspension of shipping through the route raises multiple concerns. The potential disruptions to global supply chains, pushing up freight costs, and extending delivery times are some of the most prominent concerns.
Financial market’s response
Despite the disruptions, shares in Maersk and Hapag-Lloyd rallied on the first trading day of the new year. Expectations of higher shipping rates in 2024 contributed to the positive market response. In addition, both companies have recently announced new charges for transporting goods along major trade routes.
Read: Global trade forecasted to decline by $1.5 trn in 2023: UNCTAD
Freight rates surge
The ongoing disruptions have already led to an increase in freight costs. According to Freightos’ data, the cost to ship a common 40-foot container from Shanghai to New York has risen to an average of almost $5,000. That is a significant increase compared to $3,500 in mid-December. Similar trends are observed on other major trade routes, causing concerns about potential port congestion.
As shipping companies navigate these challenges, industry leaders like Maersk, CMA CGM and Hapag Lloyd are closely monitoring the situation. The impact on global supply chains and the potential economic repercussions remain key considerations in their strategic decisions.
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