SINGAPORE, Dec 20 — The United States on Monday (December 18) announced a 10-nation coalition to fend off missile and drone attacks on ships transiting the Red Sea, which is part of a major global shipping route.
This came in the midst of growing attacks on ships in the area by the Houthi group based in Yemen, who said that they are targeting Israeli-linked ships using drones and missiles as a retaliation to the ongoing assault by Israel on the Gaza Strip since October.
The attacks on more than a dozen ships — including a vessel managed by a Singapore-based firm — by the Iran-backed Houthis, has caused major shipping players to reroute or cancel their shipments.
Maersk, the world’s second largest shipping line, said on Tuesday that it would reroute some of its vessels around Africa’s Cape of Good Hope. BP has also halted oil and gas shipments through the region.
TODAY speaks to some experts to look at the significance of the Red Sea shipping route that prompted action from 10 nations, the impact of the disruption on global supply chains and on Singapore, as well as how long the situation might last.
Why is the Red Sea route significant?
The Red Sea is a narrow strip of water in the Indian Ocean between Africa and Asia that extends from the Suez Canal to the Bab el-Mandeb Strait.
The Red Sea trade route is a “strategically significant” one, Container xChange said.
The global container trading and leasing platform added that the 193km Suez Canal that connects the Red Sea and Mediterranean Sea accounts for 12 per cent of global trade, including 30 per cent of all container movement.
The ongoing disruption is the most recent major shipping incident affecting the Suez route in recent years. In March 2021, a container ship ran aground in the canal for almost a week, stranding about US$9.6 billion (RM45 billion) worth of shipment each day.
Associate Professor Yap Wei Yim from the Singapore University of Social Sciences (SUSS) told TODAY that the Suez Canal passage is “a key trade route”, particularly for cargo shipments between Asia and Europe.
“More than 24 million TEUs of container traffic alone used this trade route in 2022,” he said.
Port container traffic measures the flow of containers from land to sea transport modes, and vice versa, in 20-foot equivalent units (TEUs), or the volume in units of 20-foot-long containers.
Assoc Prof Yap, who heads SUSS’ minor in maritime management course, added that many of the world’s biggest economies “rely on” this route.
Corey Ranslem, chief executive of maritime security firm Dryad Global, told Time magazine that travelling via the Suez Canal and Red Sea — instead of going round the African continent — can save ships more than 30 days in travel time.
Will the global supply chain be affected?
Associate Professor Tay Hui Ling from SUSS said that delays in shipments are “inevitable”, and the extent of it would depend on factors such as the rerouting distances, availability of capacity in alternative routes and other logistical complexities.
Assoc Prof Tay, who is head of international trade management minor at SUSS, added: “These inevitably have an impact on shipment cost and business’ bottom line.”
Experts who spoke to TODAY estimated that the difference in the number of days in travelling via Cape of Good Hope compared to going through the Suez Canal may range between one and two weeks, depending on various factors.
Giving an illustration of financial costs, Cormac McGarry, director at business consultancy firm Control Risks, said that a large ship may incur about US$100,000 in fuel cost for each day of travel, on top of extra costs to call on other ports along the way.
“If they (the shipping companies) have to shift long term to that route, over months, they will simply pass that cost on to their customers, and ultimately those customers are you and me,” he added.
Various experts and media reports also noted that insurance rates for shipment passing by the Red Sea route have gone up recently, though McGarry said that the increase is quite manageable and on its own would not nudge shippers to “add two weeks to their journey” by going round the African continent instead.
The experts said that it was difficult to gauge the actual impact of the Red Sea situation on the overall global supply chain, given the evolving situation.
However, some of them made comparisons in terms of scale to other developments in recent years such as the Covid-19 crisis and the Evergreen shipping incident along the Suez Canal.
Assoc Prof Yap of SUSS said that the pandemic disruptions were more pervasive, involving city lockdowns and factory shutdowns, for example, and affected many trade routes beyond those that use the Suez Canal.
“The current situation (in the Red Sea) is unlikely to evolve in scope and scale that is comparable to the Covid-19 period,” he added.
Associate Professor Rajesh Piplani from Nanyang Technological University (NTU), whose research includes supply chain management and coordination, recalled how the roughly one-week stranding of the Evergreen ship in the Suez Canal in 2021 led to impacts on the global supply chains that took “weeks to die down”.
“In the current situation, I don’t see that happening,” he said.
He explained that when the Evergreen ship got stuck, there were hundreds of ships already waiting to cross the canal and kept waiting for the ship to be unstuck.
“In the current situation, companies have decided on their own to avoid using the canal as insurance premiums have spiked due to increased danger,” he said.
Will Singapore be affected?
Assoc Prof Tay of SUSS said that as a major logistics hub, Singapore “would certainly be impacted” by potential rerouting or delays of shipments.
“The Christmas and end-of-the-year peak season for the shippers around the corner is very likely to add on the already strained logistical network,” she said.
Referring to ship tracking data from the London Stock Exchange Group, Christian Roeloffs, co-founder and chief executive officer of Container xChange, said: “At least 11 container ships, which had passed through Suez and were approaching Yemen carrying consumer goods and grains bound for countries including Singapore, Malaysia and the United Arab Emirates, are now anchored in the Red Sea between Sudan and Saudi Arabia.
“For Singapore, the situation means delays and halts in westbound trade.”
However, other experts gave a more upbeat view of the potential impact on Singapore.
Atul Chandna, leader for Asia-Pacific Supply Chain at professional services firm EY, said that the disruptions caused by Covid-19 has led to many countries, including Singapore, having better business continuity planning for critical items.
“There are alternative sourcing for essential goods planned to ensure that Singapore residents continue to have their necessities.”
In response to TODAY’s queries, PSA said on Tuesday that port operations at PSA Singapore “have not been impacted thus far”.
“Nevertheless, we continue to work very closely with our customers and partners to monitor the Red Sea situation and will assist in mitigating any potential disruptions in vessel schedules, cargo connections, where necessary,” the port authority added.
“PSA Singapore continues its operations 24/7 and is committed to service excellence to ensure supply chain channels remain open and keep trade flowing.”
TODAY has reached out to the Marine Port Authority of Singapore for comment.
How long will the situation last?
Experts differed in views on how long the situation at the Red Sea will last.
Assoc Prof Tay from SUSS said: “Resolving such geopolitical disruptions and crisis can vary significantly due to various factors.
“If we draw reference from similar disruptions like the one that affected the straits of Taiwan, we can expect disruptions to the supply chain to last at least a month,” she added, referring to the military exercises conducted by China in August last year near Taiwan that disrupted shipping routes.
However, she added that this was a “conservative” estimate.
Others said that given the importance of the route, many global players are likely to try to work together to find resolution to the situation there.
Dr Yap of SUSS and Dr Piplani of NTU pointed to the US-led coalition, named Operation Prosperity Guardian, which includes Bahrain, Canada, France, Norway, Spain and the United Kingdom as one example.
On Tuesday, US defence secretary Lloyd Austin held a virtual meeting with ministers from more than 40 countries and called on more nations to contribute to the security efforts.
Dr Yap said that another nation that has a vested interest in the smooth sailing of ships along the Suez route — and thus would work towards a resolution to the situation — is Egypt.
“I believe Egypt would want to see a resolution to the situation and for things to return to normal quickly,” he added.
“For all we know, negotiations and discussions could already be taking place to resolve the situation.”
Ultimately, McGarry, director at business consultancy firm Control Risks, said that what happens at the Red Sea is closely tied to the developments in Gaza Strip.
News agency AFP reported that the Yemeni rebels had vowed in a statement to “continue to prevent all ships heading to Israeli ports… from navigating in the Arab and Red Seas” until more food and medicine is allowed into Gaza.
McGarry, however, pointed at two positive signs, one of which was the putting together of the Operation Prosperity Guardian by the US.
While details are not out yet, the “willingness by numerous nations to commit forces to a common mission” is one of the signals that shipping operators have been looking for, he added.
Another positive signal is that the Houthis have stated that they are in negotiations, without stating which parties they are negotiating with, McGarry said.
“It is generally a good sign that they’re showing some kind of willingness to negotiate, but I would not take that as a signal that this is going to stop tomorrow or this week.” ― TODAY