Tuesday, March 5, 2024

Terror Attacks on Shipping Vessels Causing Trade Disruptions, Higher Prices at the Store

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THE PORT OF VIRGINIA – Recent terror attacks on shipping in the Middle East are sparking major geopolitical and economic implications for world trade, which could lead to supply chain disruptions and higher prices. 

Here at the Port of Virginia, a vital space for international trade, sources say incoming shipments are slowing down due to Houthi attacks on cargo vessels in the Red Sea, forcing ships to go to the West Coast. This ultimately increases insurance rates which get passed on to the consumer. Still, an even bigger problem is the potential for a broader military conflict. 

Dr. Sunderesh Heragu, associate dean at Oklahoma State University for Academic Affairs in the College of Engineering, Architecture and Technology, explains the logistical tension like this: “So imagine a shipment going from Singapore to Western Europe. Now they have to travel thousands of miles more, burning more fuel, which is, of course, not great for the environment. Beyond that, they also have to pay higher fuel prices.” 

Dr. Heragu says the direct implications of these changes are becoming evident as consumers worldwide are beginning to feel the effects, from delayed deliveries to increased costs. 

“Alternative routes increase travel time by at least 50%. This leads to delayed shipments, which in turn cause a ripple effect,” said Dr. Heragu. “Higher transportation costs and longer delivery times are just the beginning. The full impact on global supply chains could be substantial.”

Volume through the Red Sea has declined by as much as 70%. In an environment of escalating threats, major shipping companies have been considering alternative routes. While companies like Maersk and others are taking longer routes to help tankers avoid the Red Sea, Hapag-Lloyd is offering ground transportation through Saudi Arabia which still can allow customers to use the Suez Canal shortcut.

We’re also seeing this disruption create tensions between world powers. Since the attackers’ target ships from the U.S. and other Israel allies, Matthew Schleich – a researcher with CSIS – said Chinese companies have been able to capitalize on the situation. 

“The Houthis are targeting ships linked to the U.S., the UK, and Israel,” Schleich said. “Chinese ships making the passage through the Red Sea are signaling they’re Chinese ships, not holding Western cargo. So far, the Houthis have not really attacked ships based out of China. Opportunistic Chinese shipping companies are actually sending their cargo vessels over to the Red Sea to pick up some of that excess demand at a higher price.

UCLA Professor Chris Tang says the U.S.-led coalition, Operation Prosperity Guardian, which began deploying Navy ships and aircraft to the region in mid-December, is costing U.S. taxpayers too much. 

“Right now, the U.S. has an aircraft carrier patrolling the Red Sea, along with the British military,” Tang said. “They try to keep ships safe but it’s not sustainable. Each ground-to-air missile used to attack one of those drones costs over one million dollars. But the drones and missiles made by the Houthis, backed by Iran, may cost around $50,000 each. So, you cannot continue shooting these million-dollar missiles indefinitely.”
 
If the Red Sea crisis continues, these coming weeks and months will be crucial in determining how these trade routes evolve as the world adapts to these changing tides.

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