Eyes turn to Red Sea attacks’ impact on shipping freight trade

After a series of attack on vessels passing through the Red Sea to reach Suez Canal, several shipping companies have either halted or rerouted their shipments due to security reasons, raising concerns over a possible supply chain disruption, which will possibly raise freight rates and add to inflationary pressures.

As some firms plan to reroute their shipments to the Cape of Good Hope, this will raise lead times by about two weeks and lift transportation costs. Besides, Panama Canal is already battling with a drought, which has been affecting global trade for a while now, adding to the pressure on freight trade.

However, some freight experts voiced their expectations of seeing a limited impact so far, pointing to the excess vessel capacity in the market with one of them saying, “Freight rates will likely increase on these longer voyages, but due to carriers looking for ways to utilize excess capacity, it is unlikely that rates will spike to levels experienced during the pandemic."

Also, referring to a time of slow trading due to the year-end lull, another analyst said, "Wholesalers, retailers and manufacturing firms are still unwinding excess inventories at the moment, so I do not expect severe shortages or extremely high freight rates like during the pandemic."

Meanwhile, the US has announced that they will be launching a 10-nation force to protect commercial ships in the Red Sea. Canada, France, Italy and the UK are among the countries joining the multinational force with some Arab nations reported to be considering entering.

Showing a knee-jerk reaction to this news by rising more than 2% yesterday, crude oil futures are also seeing some corrections in daily trading during Tuesday, with WTI hovering below $72/bbl and Brent going back below $78/bbl.