The Red Sea, through which the Suez Canal connects Asia to Europe, has long been a crucial artery for global shipping. However, escalating conflicts and rising security risks have turned this once reliable passage into a hazardous route for shippers. As a result, many are now avoiding the Red Sea altogether. The pressing question remains: will cargo ships return to this vital route, or will they continue to divert around the longer and more costly Cape of Good Hope?
The Strategic Importance of the Red Sea and Bab-El-Mandeb
The Bab-El-Mandeb Strait, also known as the “Gate of Grief” or “Gate of Tears,” is the southern gateway to the Red Sea and a critical chokepoint for global trade. Ships traveling from Asia to Europe must pass through this narrow waterway to reach the Suez Canal—the shortest route between the two continents. The ongoing conflict between Israel and Hamas, coupled with the instability in Yemen, has turned the Red Sea into a high-risk area.
The Houthi movement, an Iran-aligned militant group, has been targeting ships carrying essential goods such as oil, cars, chemicals, and other commodities destined for Europe. These attacks are part of a broader strategy to pressure Israel into ceasing its military operations against Hamas in Gaza. Particularly concerning are the Houthi drone attacks, which have had devastating consequences. For instance, the oil tanker MV Sounin, carrying one million gallons of oil, was attacked and has been burning for weeks off the coast of Hudaydah, a port controlled by the Houthis. The environmental impact is dire, threatening 2,100 kilometers of coastline with contamination and posing serious risks to the local population.
While the Houthis present a significant threat to shipping in the Indian Ocean, piracy is also on the rise along the alternative route via the African coast. Many container ships have already implemented defensive measures, such as barbed wire, water cannons, acoustic devices, and armed guards, to fend off pirate attacks. However, these measures are ineffective against the Houthis‘ more sophisticated assaults. Ships that continue to pass through the Bab-El-Mandeb Strait and opt for the shorter Suez Canal route are now turning off their AIS (Automatic Identification System) signals—a defensive measure to avoid detection by the Houthis.
Figure 1: MV Sounion on fire (Source: Logisticinsider.in)
The Consequences of the Attacks on the Supply Chain
If shipping companies choose to avoid direct attacks by the Houthis, they must navigate the longer route around the Cape of Good Hope. While this route bypasses the conflict zones of the Red Sea, it exposes ships to the risk of pirate hijacking. Additionally, the extended journey increases the distance from 8,301 nautical miles via the Suez Canal to 11,758 nautical miles—a difference of approximately 9 days. The longer travel time significantly raises fuel and operating costs, which are passed on to companies and consumers. For example, the cost of transporting a 40-foot standard container on east-west routes has surged to USD 5,177, an increase of 233% compared to the previous year.
Beyond rising costs, supply chains are also under immense pressure. Opting for the longer route inevitably leads to delivery delays, causing products to be completed later than anticipated and, consequently, failing to meet demand. Missed deadlines and increased cancellations not only burden companies with higher transport costs but also result in lost sales.
Figure 2: Global container freight rate index from the 12th January 2023 to the 15th August 2024 (Source: statista)
Exploring Alternative Transportation Methods
The future does not hold much promise for a decline in pirate attacks—if anything, they are likely to increase. Economic hardships in many African nations, exacerbated by illegal fishing off their coasts, have driven local fishermen to join pirate gangs to support their families. Meanwhile, there is no indication that the conflict between Yemen and Israel will resolve soon, suggesting that Houthi attacks on shipping will continue unabated.
To safely transport their goods, nations and companies are exploring alternative routes. International collaborations, such as the India-Middle East-Europe Economic Corridor (IMEC), are underway to address these challenges. The IMEC involves constructing railway lines to improve connectivity between Europe and countries like India. Under this initiative, ships would dock at Persian Gulf ports such as Dubai or Kuwait, from where containers would be transported by rail to northern ports before being reloaded onto ships. This route could serve as a viable alternative to the Suez Canal and the Cape of Good Hope circumnavigation.
Alternative Routes for Businesses to Consider
Another potential solution is the Northern Sea Route, which links Europe and Asia via a passage along the coasts of Greenland, Russia, Scandinavia, and Canada. However, this route presents its own set of challenges. Sudden freezing of the water’s surface could force ships to halt abruptly, and while icebreakers could reduce delays, the high costs associated with using them, coupled with the Chinese monopoly on these services, make this option less attractive. Additionally, insurance costs for freight on this route are comparatively high, and many companies have opted against it for environmental reasons.
Conclusion
The global supply chain faces significant challenges due to the disruptions along the Red Sea route. Although military escorts are currently deployed to protect ships in the short term, the risk of inflation looms large as businesses struggle to absorb rising shipping costs. The longer route around the Cape of Good Hope remains a more expensive and less safe alternative, particularly given the recent surge in piracy.
Looking ahead, it is unlikely that the Houthi attacks will diminish; in fact, they may intensify. The involvement of the United States and Britain in the conflict, alongside the ongoing Israel-Hamas hostilities, suggests that the situation will continue to deteriorate. As the geopolitical landscape grows increasingly volatile, the shipping industry must brace for further disruptions and explore innovative solutions to safeguard the global supply chain.
