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Market News

Houthi Attacks Disrupt Global Supply Chains

Last Updated December 26th, 2023
Summary:

  • 185 vessels have been impacted by the conflict in the Red Sea.
  • 157 vessels have been rerouted, while an additional 28 vessels are drifting.
  • The majority of rerouting vessels will experience a 7-20 day increase in transit time.
  • Volume in the Suez Canal this week is down by over 31% compared to this time last week.
  • On December 25th, Maersk has announced that they will resume Red Sea transit under the protection of Operation Prosperity Guardian.

Yemen Group Houthi Targets Container Vessels

Houthi rebels in Yemen are aiming at container vessels in the Bab al-Mandeb Strait through missile and drone attacks. As of now, the Hapag-Lloyd vessel Al-Jasrah, MSC vessel MSC Palatium III, and Inventor Chemical Tankers’ M/V Swan Atlantic have been hit, with the most recent successful attack occurring on December 18th, 2023. The Maersk vessel Gibraltar narrowly avoided a missile attack on December 14th. As a result, major carriers announced they will be rerouting vessels to avoid the area. Oil giant BP has also suspended operations in the Red Sea.

To reduce the risks of traveling through the Red Sea, on December 18th a coalition of the United States, Britain, Bahrain, Canada, France, Italy, the Netherlands, Norway, Spain, and Seychelles called Operation Prosperity Guardian has set out to protect commercial vessels from further attacks and protect global trade. Additional nations that did not wish to be publicly named are also assisting.

On December 25th, Maersk has announced that they will resume Red Sea transit under the protection of Operation Prosperity Guardian. On December 26th, CMA announced that they will return to the area and increase the numbers traveling through the Suez Canal. Hapag-Lloyd plans to announce a decision on Red Sea operations on December 27th.

Vessels Impacted by Conflict

Vessels in the Red Sea are having to decide if they want to proceed with the increased risk, reroute around Africa, or anchor and wait until it is safe to pass. As of December 26thth, 2023, project44 is estimating a total of 157 vessels are rerouting around Africa so far. project44’s AI-powered ETAs have identified that the majority of rerouting vessels will be experiencing a 7-20 day increase in transit time. Some vessels that are rerouting have increased their speeds to help mitigate, which requires using more fuel, so prices for ocean could increase. 

28 other vessels are opting to drift, meaning stay stationary and try to wait out the conflict. Although Operation Prosperity Guardian has been launched, these vessels are holding off passage suggesting shippers are not confident of safety through the Red Sea. These vessels will be closely monitored as they make their next moves.

Projected Impact From the Attacks Includes:

  • Increased Transit Time
  • Disruptions to Global Oil Supply
  • Downstream Inventory Issues
  1. Increased Transit Times

The chart below outlines the median transit time for containers routed through the Suez Canal, which includes the following lanes:

  • Europe to Southeast Asia
  • Middle East to Europe
  • Middle East to US East Coast
  • Southeast Asia to US East Coast
  • US East Coast to Europe 

Since 2021, transit times through the Suez Canal have seen an overall decrease as supply chains recover from Covid-19. Notably, there was a nearly 20-day decrease for containers traveling from Southeast Asia to the East Coast of the United States. As of November, we saw an increase of 6% in transit time when compared to September, likely as a result of the Israel-Gaza conflict. The Houthi attacks are going to contribute to this upward trend.

With conflicts ongoing, anticipate increases in transit times for all lanes mentioned above. Without using the Suez Canal, these lanes will be forced to take alternative routes. Westbound containers will now have to travel around Africa, adding 7-14 days of transit. Rerouting vessels east, while potentially faster than Africa for lanes to the East Coast of the United States, will face delays in the Panama Canal, which has been facing ongoing issues with drought and water supply and has reduced capacity by 30% with more reductions planned. Additionally, these routes will require additional fuel, increasing the costs of ocean shipping.

  • Disruptions to Oil Supply

The Suez Canal sees all types of cargo and the impact will not be limited to any one industry, but the most concerning commodity that comes from this region is oil. In 2022, the Middle East exported 15.4 million barrels of oil daily, so as conflict continues, major disruption to oil is anticipated. Despite trending away from fossil fuels, oil is still widely used globally, and this will likely cause a price increase. Road transportation is the largest user of oil globally, so expect higher transportation costs as well as higher prices on filling gas tanks on personal vehicles. 

  • Downstream Inventory Issues

Another potential impact is out of stock items. The additional lead time these shipments will take was not scheduled as retailers were planning their inventory, and after the peak shopping season through the holidays, it is possible that inventories will be depleted. It is important to note that this should not impact holiday shopping and would more likely be noticeable in February.

As tensions remain high in the area, project44 will continue to monitor the situation and provide updates and insights.

About project44

project44 is on a mission to make supply chains work. As the supply chain connective tissue, project44 operates the world’s most trusted end-to-end visibility platform that tracks more than 1 billion shipments annually for over 1,300 of the leading brands, including top companies in manufacturing, automotive, retail, life sciences, food & beverage, and oil, chemical & gas. Using project44, shippers and carriers across the globe drive greater predictability, resiliency and sustainability. To learn more, visit www.project44.com.

For questions or comments:

press@project44.com

Disclaimer: The information conveyed herein, shared solely for summary and not contractual purposes, comes from both project44 and third-party reporting. The project44 data does not include all available market information, and project44 has not undertaken to independently verify the third-party reporting. Similarly, this type of data changes from day-to-day. Accordingly, the reader should not rely on this reporting to make any business decisions, and project44 expressly disavows any liability arising from any such reliance.

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