The Red Sea, a narrow sliver of water slicing between Africa and the Arabian Peninsula, is far more than just a scenic vacation spot. It is a vital artery for global trade, a strategic chokepoint, and a region simmering with geopolitical tensions that threaten to disrupt the world’s economic heartbeat.

Global Trade Lifeline

Over 10% of global trade, valued at trillions of dollars, traverses the Red Sea annually.

It serves as a crucial link between Europe and Asia, facilitating the flow of goods like oil, manufactured products, and consumer electronics.

Two critical chokepoints, the Suez Canal and the Bab el-Mandeb Strait, act as gateways to the Indian Ocean and Mediterranean, making the Red Sea a vulnerable single point of failure.

Causes to effect the vessels shipment all routes around the globe

Houthi Attacks: Recent attacks by Yemen’s Houthi rebels on commercial vessels raise concerns about maritime security and potential disruptions to shipping.

Regional Rivalries: Saudi Arabia and Iran, locked in a proxy war, use the Red Sea as a staging ground for their strategic competition, further raising the risk of escalation.

Piracy and Terrorism: Historically, the Red Sea has been plagued by piracy, and the presence of extremist groups adds another layer of security concerns.

Consequences

Officially, all the shipping lines have stopped service at Red Sea region. All the costs will be accounted to the customers – Estimation of increase is 3-4 times before the event.

Shipping time is expected to be longer than usual (15 – 20 days more for the route from Vietnam to EU), making the total shipment time could be around 50 to 60 days. This could affect directly to the scheduled of selling and distributing as planned.

As Red Sea is the main route of energy & oil transportation, the jump of pricing level could be a jump of pricing on all other goods, leading to the weaken of global economic in the next 2-3 months.

Recommendation

We believe this crisis could not be end anytime soon – up until the end of March, 2024. Therefore, the shipment plan has to be re-scheduled and well-calculated again all costs.

This margin of increase should be shared by both suppliers & buyers. In that way, all the parties would pay less cost than the actual one.