For the past six months, container shipping companies have rerouted cargo around Africa to avoid Houthi rebel attacks in the Red Sea, bypassing the Suez Canal. What once seemed unlikely is now the norm, impacting industry capacity and causing outbound Asia rates to soar.
Despite the possibility of a Gaza-Israel ceasefire, the Houthi rebels have little motivation to cease their attacks. The U.S. shows no inclination to intervene militarily, and a political resolution remains doubtful.
Jack Kennedy, associate director of country risk for the Middle East and North Africa at S&P Global Market Intelligence, explained that the ongoing blockade of Yemeni oil export terminals by Houthi forces hinders any sustainable agreement. “The current US-led operations have not fully prevented Houthi attacks on shipping, and the group continues to demonstrate their ability to deploy various weapon systems to harm vessels,” Kennedy noted, adding that progress towards a wider ceasefire appears stagnant.
Aligning with the Palestinian cause, the Houthi rebels have gained significant leverage and increased recruitment since initiating attacks on container ships last November. Geopolitical analysts argue that they are unlikely to stop even if the Israel-Hamas conflict ends.
The announcement of a potential ceasefire between Israel and Hamas on June 11 led to a drop in the stock prices of shipping companies like Maersk and Hapag-Lloyd. Johan Sigsgaard, speaking to Danish newspaper Børsen, emphasized that an Israel-Hamas ceasefire does not guarantee an end to Houthi attacks. Meanwhile, Hapag-Lloyd CEO Rolf Habben Jansen remains hopeful for a Red Sea resolution within the next 18 months, stating he believes global powers will not allow the critical Suez Canal trade route to remain compromised.
Recently, the bulk carrier Tudor sank following a Houthi drone boat attack, marking the second vessel lost to rebel actions after another bulker was attacked and sank in March. These diversions are significantly affecting global shipping capacity. Analyst Heather Hwang estimates that 5% to 9% of effective global capacity is currently consumed by these rerouted shipments. She predicts that relief might come by September if Asia port congestion lessens or ship deliveries are expedited.
The U.S. East Coast and Europe container trades now require 29 ships with capacities of 12,500 TEUs or more to compensate for the longer voyages around Africa. With 31 such ships expected to be delivered by the end of September, it appears these diversions will continue for the foreseeable future.
