RED SEA CHALLENGE

Content –

1. 1. Present scenario
   2. Importance of Suez Canal
   3. Instances leading to this challenge
   4. How are the vessels being attacked by Houthi rebels
   5. SWOT Analysis
   6. Reality Unfolded
   7. By when this Challenge will be resolved?
   8. Present advise to exporters and importers

1. 1. Present scenario

      Around Nov’ 2023 the shipping vessels are attacked by Houthi rebels and presently nearly most of the shipping lines have diverted their vessel through Cape of Good Hope. There looms a fear for safety of crew, vessel and cargo while sailing through Red sea passage.

2. Importance of Suez Canal

1. 1. Global Container ships passing through Suez Canal – 30 %
   2. Overall ships passing through Canal -15% to 20%
   3. Most important – Suez Canal, connects western world to east by reducing the vessels journey/transit time/voyage cost. We have done a simple analysis of a container vessel movement from 2 major transshipment ports – from Colombo, Sri Lanka to Algeciras, Spain. The pictorial representation of the analysis is in the above image. We will discuss specifically about Suez Canal in later blogs.

3. Instances leading to this Challenge

After Israel Hamas war started in Oct 2023 their has been regular attacks at commercial vessels of shipping lines and on 20^th Dec many shipping lines decided to route their vessel through Cape of Good Hope.

1. 1. The attacks are said to start around 19^th Nov 2023 with attack on ship – Galaxy Leader – partially owned by a British company and an Israeli Company which was hijacked near Red Sea.
   2. On 14^th Dec 2023 vessel – Maersk Gibraltar – a container ship of Maersk had a near miss.
   3. On 15^th Dec 2023 vessel – Al- Jasrah , a Liberian Flag container ship of Hapag- Lloyd was hit by an expected projectile drone attack , it caused fire on the deck but no injuries occurred.
   4. Approx. 50+ commercial ships were attacked till 20^th Nov.
   5. Since mid of December 2023, most of the commercial vessels routed there sailing through Cape of Good Hope.
   6. The deadly nature of this impact was seen on 2^nd Mar when a vessel -MV Rubymar, a Belize flagged and UK-owned bulk carrier was hit by anti-ship ballistic missile and the vessel sunk in the sea.

4. How are the vessels are being attacked by Houthi rebels ?      

Houthi rebels are using anti-ship ballistic missiles and drones to attack vessels. They also try to hijack vessels. They attack ships near South of Red Sea, near Bab Al Mandab strait – its only 18 miles wide at its narrowest point which lies between Djibouti and Western Yemen which is much under control of the Houthis.

Result of the attacks :-

Decision taken by shipping lines- to route vessels through cape of Good Hope for safety. Disruption of the global supply chain.

5. SWOT analysis has been shown below

 Below is detailed analysis of threats

1. 1. Vessel Phase out at mother ports – A Longer transit means deployment of more vessels, which are not there. A three-week longer transit would absorb 3 extra vessels for a weekly calling service and this would increase need of 7 vessels instead of 4 vessels per month for a weekly calling service of any shipping line.
   2. Container congestion at transhipment ports like – Dubai, Rotterdam, Singapore etc. Where the mother vessel arrival would get delayed. A situation where feeder vessel/ mother vessel would dump the containers at transhipment port without having any confirmation of the next leg vessel. The per container port storage charge at transhipment port can be few dollars. Which will lead to an extra cost to shipping line leading to increase in freight.
   3. Rise in oil prices if oil supply through Red sea is delayed/blocked, same may lead to increase in Bunker price.
   4. Containers shortage may start as displacement of empty container might get slow.
   5. The biggest threat for whole shipping industry is loss of vessel in mid of sea– it could put stakeholders at monetary loss.
   6. Increase in insurance rates.
   7. As per different agencies research estimates this could add 0.3 %age to overall global core inflation during first half of 2024.
   8. The increase in carbon emission will be approx. 14000 MT for big size vessels routing through Cape of Good Hope.

6. Reality unfolded –

Till November 2023 “Red sea Challenge” was a sleeping issue to wake up on any bright day. Many analysts are saying it is good to face this today and to find a solution soon rather than sleeping on this

7. By when this Challenge will be resolved?

1. 1. As per ongoing situation – it does not seem to end soon.
   2. As a solution – USA formed a naval coalition with- UK, France, Canada, Bahrain, Italy and other countries on 18^th December 2023 This group called “TASK FORCE” or “OPG” – Operation Prosperity Guardian and is doing joint patrol in Red sea and nearby area, but the warships to be involved in this coalition will take time to train themselves to protect the vessel from the way the Houthi rebels attacking by using non- conventional warfare.
   3. Above coalition was further enhanced by formation of Operation Aspis by European Union on 19^th February 2024.
   4. We would get and idea when OPG will be used to this and can give complete safe passage for vessels.

8. Present advise to exporters and importers – 

1. 1. To take extra annual budget for increase in logistics cost.
   2. Plan in advance to book space on vessels.
   3. Take extra lead time for cargo arrival at destination.
   4. Keep searching for alternative routes.