The Red Sea, a pivotal maritime route that has historically served as the backbone of global trade, is now at the center of escalating geopolitical tensions. These developments have put supply chain resilience into the spotlight, emphasizing the need for businesses to adapt swiftly to safeguard their operations against the unpredictability of global logistics.
In a recent webinar hosted by project44, Salvatore Mercogliano, Ph.D., Chair of the Department of History, Criminal Justice, and Politics at Campbell University, shared more about the downstream impacts of the Red Sea crisis and its implications for global shipping and trade.
Here’s what you need to know:
Non-State Actors and Global Shipping: The Houthis, a non-state actor involved in Yemen’s civil war, along with other parties like Iran and Somali pirates, have been attacking global shipping routes, particularly in the Red Sea. This has escalated following conflicts in the region, leading to a wider regional tension affecting global trade routes.
Impact on Vessels: Attacks have directly damaged vessels, including a notable incident involving an American-owned Marshall Island bulk carrier, which was hit by a Houthi missile. This type of attack raises concerns about the safety and security of ships passing through the Red Sea, contributing to global supply chain disruptions.
Insurance Costs Rise: The threat to shipping has led to a significant increase in insurance costs, specifically war risk insurance, which has risen from 0.02% to 1% of the total value of the ship and cargo. This has made it economically viable for shipping companies to reroute around Africa despite the additional distance and costs involved.
Re-routing of Ships: High-value ships, including large container ships and tankers, are increasingly rerouting around Africa to avoid the high-risk Red Sea passage. This change in routing is in response to the heightened risks and insurance costs, with major shipping companies like Maersk Lines Limited altering their routes due to attacks on their vessels.
Capacity and Supply Chain Issues: The longer routes necessitated by avoiding the Red Sea have led to a capacity crunch in the shipping industry. Ships now require more time to complete voyages, which translates to a need for more ships or heavier loading of vessels to maintain cargo volumes. This situation is compounded by the shipping industry’s current state of flux due to new container ships entering the market and adjustments in global shipping routes.
Broader Maritime Chokepoints and Environmental Concerns: Mercogliano highlighted the significance of other maritime chokepoints like the Panama Canal, which is experiencing reduced capacity due to drought, affecting the number of ships that can pass through. This situation forces shipping companies to find alternative routes or strategies, further complicating global shipping logistics.
Global Geopolitical Tensions and Trade Impacts: Mercogliano underscored how regional conflicts and tensions, such as those involving the Houthis, can have far-reaching effects on global trade. Even small players can significantly disrupt international shipping and supply chains, necessitating close monitoring of geopolitical developments and flexible routing strategies by shipping companies.
Navigating disruption with high-velocity platforms
With disruptions like the Red Sea crisis impacting the global supply chain, how can supply chain professionals get ahead? The answer is real-time visibility. Advanced technology platforms like Movement provide the necessary tools to make supply chains more resilient, enabling businesses to reroute shipments, strategize shipping lines, and communicate transparently about delays and delivery expectations.
Within our high-velocity supply chain platform, Movement, our customers can access unique insights into how their shipments and orders are affected that they can’t get anywhere else. Customers can access customized dashboards that make it easy to understand which vessels are rerouting to avoid the Red Sea, which vessels are sailing through the Bab al-Mandeb Strait, and which vessels are dwelling in the Red Sea or surrounding areas.
Learn how project44 helps our customers stay ahead of disruptions like the Red Sea crisis.
Discover the full extent of the Red Sea crisis and its impact on the global supply chain by watching our comprehensive webinar, “The Red Sea Crisis: How to Survive & Thrive in a Never Normal Supply Chain.”