Red Sea crisis disruption could last all year, says shipping expert

Ongoing attacks by Houthi rebels in the Red Sea are causing major disruptions in global supply chains. Disruption that could become the new normal, says former navy officer Ami Daniel, the co-founder and CEO of Windward, a global leader in maritime AI and risk analytics, which has been supporting its customers through the crisis.

Houthi rebels, Yemen’s militant group, have been targeting commercial vessels in the Red Sea since 7 October in protest against Israel’s military operations in Gaza. They are attacking ships owned by Israelis or ones they determine are en route to Israel.

The attacks are significantly disrupting the flow of commercial goods through the Red Sea and Suez Canal, a key route for business between Asia and Western countries, and responsible for about 12 percent of global trade.

Daniel told Jewish News: “Containerised rates have quadrupled and delivery times are two weeks more, and then with vessels having to go around other areas you will see congestion at ports… The supply chain is amalgamating. It’s a rolling effect of a layer upon another layer upon another layer.

“This could be the new normal, and this quadrupling of freight rates as a result, is likely to be the situation over the next 12 months.”

According to Windward insights, more than 300 ships have had to change course, with one in five commercial vessels avoiding the Red Sea. “The disruption is real,” said Daniel, who founded Windward with fellow ex-navy officer Matan Peled. The company is chaired by Lord Browne, the former boss of BP, and listed on the London Stock Exchange on 2021.

Around 30 percent of freight shipped through the canal is made up of containerised goods, which Daniel says is about half the world’s toys.

The route also provides a crucial passage for oil shipments from the Persian Gulf to Europe and North America, and for car imports and exports.

Many of the impacted vessels that had been heading to Europe from Asia via the Red Sea are having to sail around the Cape of Good Hope in South Africa, adding between 10 and 21 days to the duration of the trip.

“Car manufacturers are avoiding the area three times more month over month,” said Daniel.

“When the Houthis first attacked in November, Toyota, Hyundai and Kia responded immediately, rerouting their cargo.”

Suppliers for the likes of Ikea, Amazon and other global retailers are doing the same as businesses struggle with the biggest shipping upheaval since the Covid-19 pandemic. The crisis is having a significant impact on supply chains, both driving up delivery costs and times and posing a threat to the global economy.

The car industry is particularly impacted. The likely knock-on effects of increased prices are coming at a time when inventories for goods are already depleted.

“And I don’t see how this gets solved. It’s ongoing,” said Daniel.

He noted that when the Houthis attacked the CMA CGM vessel (one of the world’s largest container shipping companies) in November  – freight rates sky rocketed- with some quoting $6,000 for China to Europe trade, compared to $1,500 a couple of months earlier.

The Shanghai Containerised Freight Index (SCFI) reported that spot prices for containerised freight from Shanghai have been rising week on week hitting their highest level since October 2022, up from 7.8 per cent to 1896.65 per cent.

According to Freightos, freight rates from the East Coast to China increased from $356 on October 14th to $523 on December 29, and now likely higher.

Windward, which is listed on the London Stock Exchange, recently launched of its Route Deviation (RDV) Exception, to flag route changes caused by the Red Sea crisis. This provides stakeholders with early alerts of changes to container shipments that have shifted away from entering the Red Sea, enabling them to efficiently adapt to changes and mitigate negative outcomes.

“Windward has its finger on the pulse with all matters related to maritime risk, be they compliance or supply chain related,” said Daniel. “Less than a month into Russia’s invasion of Ukraine, we launched our Russia compliance tool, now we have launched this capability to equip our customers with a first of its kind tool to deal with this unprecedented new challenge. This rapid deployment shows the robustness of our platform and technology and its ability to swiftly adapt to clients’ changing needs.

He said: “This is affecting every ship operator, forwarder, trader and consumer. Knowing where to look can make a big difference.”

Daniel advises that businesses ensure they communicate with customers and stakeholders and carriers, and assess the situation every day as its moving very fast.

“Originally the Houthi said they were going after Israeli vessels and vessels carrying stuff connected to Israel but in many of the attacks, we don’t see a connection with Israel.

“I would say that they are looking to build their brand and therefore going after the biggest brands like CMA-CGM and Maersk.”

He believes Western carriers are under the highest risk. “Having said that, the more the US navy and UK protect these vessels, I think they will go after other targets, as I believe their aim is to build their brand.”

How long can this go on for? Is it the new normal? “My view is that it is and it isn’t easy solvable. It doesn’t look like the Houthis are standing down, so while I understand, and salute and appreciate the amazing work the US navy are doing, it’s not really stopping the Houthi capabilities right now.”

He added: “We are seeing geopolitical crises everywhere; we are seeing China talking about Taiwan, there is the Houthis, there is Russia and Ukraine.. we are seeing more conflicts than not. There are many bad actors at play, leading to a lot of disruptions, which highlights the importance of technology.  The more business intelligence you have, the more you can influence what’s going on.

“I fear that the post 1945 world order is not in a good shape. Get used to the new normal of disrupted world order. This is going to take a while.”

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