Business Leaders Anticipate Prolonged Trade Disruption Due to Tensions in the Red Sea

Business leaders caution that the disruptions to shipping in the Red Sea caused by Houthi militant attacks in Yemen could continue to impact supply chains and decrease the availability of tankers for fuel transportation for months to come.

Since November, the Houthi militia, backed by Iran, has been targeting ships in the Red Sea, disrupting trade between Asia and Europe and garnering attention from major world powers. The conflict has escalated in the wake of Israel’s ongoing conflict with Palestinian Hamas militants in Gaza.

In response to American and British strikes in Yemen, the Houthis have threatened to expand their attacks to include U.S. ships. Shipping lines like Maersk have diverted hundreds of commercial vessels away from the Red Sea, opting for longer routes around Africa until the safety of vessels can be assured.

Acknowledging the significance of the shipping route, Maersk CEO Vincent Clerc expressed concern about the impact of the disruption. He stated, “This is extremely disruptive because you have close to 20% of global trade that transits through the Bab al-Mandab Strait (to the Red Sea). It’s one of the most important arteries of global trade and global supply chains and it’s clogged up right now.”

The disruption has led to a significant increase in freight rates since early December, with impacts on global supply chains and potential inflationary pressures, raising concerns for the automotive industry. Additionally, the alternative shipping route around South Africa’s Cape of Good Hope adds 10-14 days to a journey when compared to traveling through the Suez Canal, further impacting trade and logistics.

Prolonged conflict and attacks by the Houthis on ships could eventually result in a shortage of tankers, affecting fuel transportation. The U.S. military’s recent strikes in Yemen against Houthi-controlled targets, including anti-ship ballistic missiles, reflect the escalating situation in the region. This has prompted the Biden administration’s plan to put Houthi rebels back on the U.S. list of terrorist organizations with the goal of cutting off their funding and weapons supply.

The tensions around Red Sea shipping are underscored by recent incidents, including new attacks on a Malta-flagged container ship and a Greek-owned bulk carrier, as well as a bomb blast targeted at Israeli shipping company Zim’s offices.

The unrelenting conflict has significant implications for the automotive industry and emphasizes the importance of monitoring the situation and establishing contingency plans to mitigate potential disruptions and manage risks associated with escalating geopolitical tensions.