Shipping companies are choosing to avoid the Red Sea, a major water route, due to a recent series of attacks on ships. Swiss-based MSC, one of the largest container shipping companies in the world, announced that they will suspend the use of this route after their ship, the MSC Palatium III, was attacked on Friday.
Attacking the Red Sea
The Red Sea has been targeted in recent weeks by the Iran-backed Houthi movement in Yemen. These attacks have escalated following the war between Israel and Hamas in Gaza. In response to the attacks, other major shipping firms, Maersk and Hapag-Lloyd, have also decided to temporarily avoid the Red Sea.
Consequences for Shipping Companies
The decision to avoid the Red Sea has had a noticeable impact on shipping companies. Maersk shares saw an increase of approximately 8% on Friday, while Hapag-Lloyd shares rose approximately 16%. However, this choice has significant repercussions for the industry.
The Importance of the Red Sea Route
The Red Sea is a crucial trade route for ships transporting goods from Asia to Europe. It cuts through Yemen in the south and Egypt's Suez Canal in the north, offering the shortest passage. Without this route, MSC has stated that they will redirect some ships around the southern tip of Africa, resulting in longer journeys and increased costs.
Existing Trade Route Challenges
Even before the attacks in the Red Sea, trade routes were already facing challenges. Due to low water levels, shippers have experienced restrictions in using the Panama Canal for transporting goods between Asia and the East Coast of the United States. Losing access to the Suez Canal, even temporarily, further prolongs voyages.
Experts from Wells Fargo have highlighted the significance of both canals in reducing shipping days and costs. Restrictions on their use have a multiplying effect on shipping efficiency and expenses.
Energy Market Implications
In addition to impacting the shipping industry, these attacks could also have consequences for the energy market. The Suez Canal is a vital route for transporting petroleum and natural gas exports from the U.S. to East Asia.
