The disruptive consequences of the attacks on Red Sea shipping by Yemen’s Houthi rebels were underscored recently by Jan Hoffmann, the logistics chief at Unctad, the UN trade body. These incidents, he noted, were exacerbating the
vulnerabilities of global trade and supply chains, adding to the challenges arising from the Ukraine conflict and from reduced shipping in the
Panama Canal, where water levels have been dropping due to climate change.
The armed Houthi rebel group, which has taken up the cause of the Palestinians, has said it is only targeting merchant ships in the Red Sea with an Israeli connection, promising safe passage for vessels from China, Russia and other nations. In a significant attack last month, however, Houthi militants fired missiles at a
tanker carrying Russian oil near the coast of Yemen.
It underscored the group’s inability to precisely identify its targets, and suggests it may be a matter of time before Chinese vessels come under attack. China’s approach to the situation reveals its challenges, both economic and geopolitical.
With ships avoiding the Red Sea, the volume of trade going through the Suez Canal had fallen by 42 per cent over the past two months, said Unctad on January 26. China is primarily concerned about the increased time and costs associated with shipping through alternative routes. The freight rate for the Shanghai-Northern Europe route has surged, from US$581 per 20-foot equivalent unit (TEU) in mid-October to US$2,694 at the end of December – triple what it was at the start of December – surpassing US$3,000 in January.
Beyond shipping costs, the transport of energy commodities has been affected. Major liquefied natural gas exporter QatarEnergy had to pause its LNG shipments via the Red Sea briefly last month and ship movements in the area remain fraught and disrupted. Additionally, shipping through the alternative route of the Panama Canal has been restricted, as a
severe drought lowered water levels, forcing major shipping companies to scramble for other strategies. Consumer goods may continue to encounter notable disruptions even during the slow shipping season.
Chinese ships may be navigating the Red Sea without being attacked but China still has to contend with elevated energy prices,
increased shipping and insurance costs, and extended shipping times to Europe. Reductions in passages through the Suez Canal could result in more price divergences and heightened volatility in commodities, including oil.
