The March 6 deaths of three sailors onboard the Barbados-flagged cargo ship True Confidence off the coast of southern Yemen follow the March 3 sinking of the UK owned bulk carrier Rubymar struck Feb. 18 in the Gulf of Aden. Since October 2023, the Houthis have attacked ships transiting the Red Sea on more than 60 occasions. Insurance brokers say incidents occur daily that are not widely reported because they are not dramatic resulting in superficial damage. Illustration Adobe Stock.
The escalation of hostilities between Iran and Israel and continuing attacks by Hamas allies in Yemen dim hopes for the resumption of tea and coffee shipments via the Suez Canal.
In March, Yemen-based Houthis sank a bulk carrier and killed three sailors in separate attacks. Authorities report 60 perilous incidents since October involving armed Houthi drone attacks, illegal boarding by the Iranian Navy, and the first use in combat of anti-ship ballistic missiles.
Ten percent of the world’s seaborne trade by volume transits the Suez Canal. Monthly transits through Suez are down 37% year on year. The Suez Canal generated a record $9.4 billion in revenue in 2023. Revenue is down 40%. Security threats will greatly limit transit, redirecting ship traffic away from the Red Sea for some time.
Disruptions burden logistics globally, with Europe bearing the brunt of delays and costlier shipments of everything from consumer goods and soft commodities to oil and ore.
Asia and Africa’s growers supplied about half of the 2.9 million metric tons of coffee Europeans consumed in 2022. Coffee and tea containers will spend an additional 10-12 days at sea in 2024. Ships traveling from Vietnam, which supplies 22% of Europe’s coffee imports, might have crossed the Atlantic, but unusually low water levels in the Panama Canal severely restrict traffic. Uganda is Europe’s third largest coffee trading partner, shipping 215,000 metric tons, about 7.3% of the total. Another 5.1% arrives from India. Brazilian coffee accounts for 35.3% of European coffee imports, but Atlantic crossings are not impeded.
Twenty-two percent of all containerized trade transits the Suez Canal. Exporters are frustrated by a spike in contract prices that erode margins on soft commodities like tea and coffee. Drewry’s World Container Index was $2,706 for a 40ft container on April 25, up 55% from the same week last year. Rates are 90% higher than the 2019 pre-pandemic average of $1,420. Transatlantic rates remain stable.
Schedule disruptions have slowed growth at British and North Sea ports in Rotterdam, Bremen, and Hamburg, which land most of Europe’s tea. As longer transits reduce availability, charter rates for containers increase. In February, due to Red Sea disruptions, freight rates to Europe from India doubled. Europe is India’s second-largest export destination. Routing around Africa adds 10 to 14 days at sea for tea arriving from Asia, Africa, and tea producers in India, Sri Lanka, Bangladesh, and Nepal. UK blenders and grocers importing packaged tea report some shortages. Half of the UK’s tea imports are sourced in Kenya and India.
Meanwhile, Indian tea exporters have virtually halted shipments to Iran where new sanctions interfere with timely payments.
African Winners and Losers
Foreign trade for several East African nations highly depends on the Suez Canal. Kenya ships 15% of its goods, and Tanzania 10% via the Suez Canal. Thirty-four percent of Sudan’s trade volume is via Suez.
The UN Conference on Trade and Development (UNCTAD) writes that containership arrivals at South African ports have increased 328% since December. “The Red Sea crisis has also impacted African ports and caused congestion as rerouting entails the need for more vessels to call at African ports, including for bunkering services.”
UNCTAD writes that ports at Dar es Salaam, Tanzania, and Beira in Mozambique that handle millions of kilos of commodity coffee, tea, and spices find it difficult to load larger vessels that are arriving. World Cargo News writes that the ports at Mombasa, Kenya, and Tanger-Med are the exceptions. “Overall, the port productivity in Africa experienced a significant setback, plunging by more than 18%, primarily attributed to a pronounced deterioration in vessel waiting times,” reports World Cargo News.
Hull and cargo insurance premiums increased 15% to 20% after the initial attacks but are stable. Insurance provider Lloyd’s is assessing the potential closure of the Strait of Hormuz following Iran’s seizure of the MSC Aries, a 14,300 TEU container ship owned by a UK shipowner.
The only bright spot is that oil prices remain stable. The US Central Command says its forces are successfully engaging (UAV) vehicles in areas controlled by Iranian-backed Houthis without damage to US, coalition, or commercial ships.
The situation remains volatile. The Economist Intelligence Unit lists conflict in the Middle East as one of five high-impact threats to business worldwide, citing “risks associated with disruptions to the region’s maritime shipping routes and global terrorist activities perpetrated by non-state actors.
“In an already tight oil market, disruption to oil production and shipping from the Middle East would increase international oil prices significantly, further prolonging cost-of-living pressures, particularly for oil-importing emerging economies. A regional conflict in the Middle East would also draw in external powers, potentially exacerbating tensions between the US and its allies on the one hand and China and Russia on the other.”