Is new crisis in the supply chain on the way?
The Red Sea's security concerns have prompted adjustments in maritime transportation routes, amidst fears of cost increases and inflationary pressures brought on by longer ocean journeys.
In response to the persistent assaults by Yemen's Houthi insurgents on commercial ships in the Red Sea starting from November 2023, this situation endangers passage through the Suez Canal, which offers the shortest route between East Africa, Europe and Asia and through which approximately 12 per cent of global trade is carried out. Hence the largest container line operators have made the decision to halt their voyages in the region. Due to the ongoing attacks by Yemen's Houthi militants on commercial ships sailing in the Red Sea since last month, the political turmoil in the region has suddenly turned into a commercial chaos. Mediterranean Shipping Company (MSC), the world's largest container company, announced that its ships will not pass through the Suez Canal east and west until the Red Sea passage becomes safe. MSC, which has suspended Red Sea voyages, Danish Maersk, French CMA CGM and German Hapag-Lloyd are among the world's five largest container shipping companies. Four companies account for approximately 55 percent of the global container shipping market.
What will happen next ?
Undoubtedly, we experienced the closest example of this situation in the 2020-2021 period, when the Covid epidemic ravaged the world. The non-return of containers going to China, the imbalance in the supply and demand balance, the efforts of many transport companies to take advantage of this situation, and as a result, the shipping container prices increasing at exorbitant rates. Under today's conditions, shipping lines have already increased their transportation prices by averagely 2 times. It is possible to see the most important effect of this directly as the increase in commodity prices in a short time. The Suez Canal has been the site of multiple ship attacks, prompting freight companies to change their usual delivery paths and resulting in a significant spike in shipping costs. This poses a threat of inflated prices for various products, including oil, electronics, and food items. If this trend persists, we will likely see a significant rise in shipping fees added to the cost of products, resulting in a detrimental impact on people's ability to make purchases.
What happened before in the Suez Canal?
The Suez Canal incident of 2021, where a ship was stuck for a week, caused temporary disruption in the global economy without leaving any lasting impact. However, it did create ripples in the global supply chain that were felt for several months. However, this event did not create any inflationary situation, and the event returned to normal relatively without causing outrage like the pandemic period. However, in today's situation, the expected scenario is unfortunately quite dark.
How will global markets be affected ?
As someone who regularly trades with Sub-Saharan Africa, I would like to first state that this region will be seriously affected. The economies of the countries of this region are largely based on imports. Not only technological products, but also basic food products are important commercial commodities for the African continent. First of all, let's start with the extended arrival times of ships on the road. There are currently hundreds of ships and tens of thousands of containers on the way to East African ports. The late arrival of these containers to African ports means that the countries' stocks are replenished late. Since there will be a shortage of stock in products, traders who have stock may tend to increase prices. This will naturally lead to a net increase in product prices, which will further adversely affect the markets, which have already been under the influence of inflation and exchange rate increases for 2-3 years. Another impact of this situation will clearly be on trade between Europe and China. While vessel traffic between the two regions normally takes 26 days on average, the same route going from the Atlantic via South Africa instead of the Suez Canal increases the time to 36 days. As a result, there will be an added transit time of roughly 10 days and 6,500 kilometers. Route changes will affect more than just oil. 12 per cent global trade passes through the Red Sea, which means goods worth approximately $1 trillion annually. Main shipping lines have started to re-route almost completely, which means that costs are increasing exponentially. The surge in expenses will lead to a hike in the prices of all commodities. Of course, in addition to this, the operations of the cargo to be left and received at all transfer ports are also cancelled. This turns into a completely new and arduous process not only for commodity trade but also for global shipping.
What will happen if there is no solution?
Because of this complicated situation, many vessels will not be able to reach their final ports. In addition, we will encounter the problem of containers being offloaded at the wrong ports. Being in the wrong port means port congestion and the risk of further delays. If urgent action is not taken, I think global markets will face a huge supply chain problem in a short while. Unfortunately, gradual increases in general commodity prices will revive inflationary environments. I regret to say that, in this situation, we can expect price hikes in energy and gas prices in the world. In other words, the situation can turn into not only a financial but also a human dimension, as highlighted in my previous words. Therefore, the circumstance must calm down as soon as possible and the actions must be resolved amicably.