Rerouting, due to Houthi attacks in the Red Sea, has cost coffee roasters millions, contributing to price volatility, which recently hit 25-year highs.
Fourteen months after Yemen-based insurgents strangled transit through the Suez Canal, shipping firms are cautiously optimistic that a Gaza truce will enable safe passage.
On Jan. 22, the Iran-backed Yemeni Armed Forces (YAF) released the 25-member crew of the Galaxy Leader, a car carrier seized in Nov. 2023. Six US and UK ships have safely navigated the Red Sea passage since Jan. 19.
A Houthi spokesperson announced the group would halt attacks on vessels during the ceasefire but left open the possibility of resuming attacks. The 42-day suspension of hostilities is contingent on the release of hostages and the complete withdrawal of Israeli armed forces from the Gaza Strip. In an emailed statement, YAF said it would limit attacks to Israeli-linked vessels until “full implementation of all phases” of the ceasefire.
The Red Sea is a critical maritime route for tea and coffee shipments from East Africa and Asia to Europe. The attacks have led to substantial disruptions, with many shipping companies opting to reroute vessels around the Cape of Good Hope. This detour adds approximately 4,000 miles and 10 days to the journey, increasing transit times and fuel costs. Rerouting has cost coffee roasters millions, contributing to price volatility, which recently hit 25-year highs. Robusta futures surged more than 30% last January.
Effectively closing the Suez Canal has disrupted trade in many ways. European buyers turned down shipments from Vietnam that pass through the Red Sea and are choosing Brazilian coffee suppliers instead. The Ethiopian Coffee Exporters Association reported shipment delays and reduced vessel availability, impacting export performance. The Suez Canal Authority reported a revenue decline of $2 billion as volume dropped by half and monthly transits decreased by 37%.
Maritime risk firm Ambrey Analytics said Houthi actions will continue while Israeli military forces operate within the Gaza Strip. The Houthis have shown little willingness or ability to distinguish between the ships they target. The Washington Institute for Near East Policy writes that it is unclear what shipping database the Houthis use to create their target list, leading many shipping companies to avoid passage. Two ships have been sunk since November 2023, and several damaged. US and allied warships have defended against hundreds of drones and ballistic missile attacks.
Bloomberg reports that container giant A.P. Moller-Maersk A/S, oil tanker owner Hafnia Ltd., Switzerland’s MSC Mediterranean Shipping Co. SA, and Japan’s Mitsui OSK Lines Ltd. are still monitoring the situation. Maersk said it would return to the Red Sea and sail through the notorious Bab el Mandeb strait when it’s safe, adding that it was still too early to speculate about the timing.
Munro Anderson, head of operations at marine war risk and insurance specialist Vessel Protect, told Reuters, “This remains a deeply complex and volatile region where the idea of threat levels to vessels and their crews substantially subsiding in the near term is unrealistic.”
Drewery’s World Container Index decreased by $3,445 per 40-ft container (FEU), down 13% compared to last January, but shipping insurance premiums remain high. In 2023, spot rates from Asia to North Europe were around $1000 per FEU. The index spiked 122% at the onset of the crisis, exceeding $4000 FEU, and is now expected to fall.
The mass resumption of transits through the Red Sea—which never stopped—would be significant for shippers and commodity markets. Sea-Intelligence CEO Alan Murphy told The Loadstar today. “For the shipping lines–and investors in shipping lines–the somewhat cynical financial perspective is that this [the ceasefire] is bad news.
“We might see some ships resume Red Sea transits in the coming weeks,” said Jakob Larsen, chief safety and security officer at shipping trade group BIMCO. “But it will require fairly strong indications of ceasefire stability before shipping in general resumes transits to pre-conflict levels. The container lines will probably take a little longer.”