Why is global shipping and trade struggling

Vibha Sharma

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Chandigarh, January 3

Attacks by Houthi rebels in the Red Sea — the shipping route for around 12 per cent global commerce and 30 per cent container trade — have further added to the travails of the shipping industry already suffering due to a lingering issue on another key route — the Panama Canal.

Amid attacks and fears of theft and destruction in the zone, exporters, including in India, are holding back shipments, according to reports, while some shipping lines are opting for a longer route via Cape of Good Hope, adding to time and costs that will only be borne by consumers, say experts.

Oil, natural gas, food grain, and various consumer items pass through the waterway en route to the Suez Canal from where around 12 per cent of the world’s trade passes.

The “shift” in maritime incidents closer to the Indian EEZ and increasing attacks on commercial ships transiting the Red Sea, the Gulf of Aden, and the Arabian Sea, has prompted the Indian Navy to go for “substantially enhanced maritime surveillance efforts” in Central and North Arabian Sea and “augmented force levels”.

“The piracy incident on MV Ruen approximately 700 nautical miles from the Indian coast and recent drone attack on MV Chem Pluto, approximately 220 nautical miles South West of Porbandar indicates a shift in maritime incidents closer to Indian EEZ,” as per a statement.

Houthis, their cause

Basically, the Houthi movement is a Shia Islamist political and military organisation, emerging from Yemen around the 1990s.

Predominantly Zaidi Shias and leadership largely from the Houthi tribe, it came to prominence fighting against Yemen’s Sunni-majority government since 2014.

Following the October violence between Israeli forces and Hamas, the Houthis have been attacking commercial vessels with Israeli links or sailing to Israel, using missiles and drones, and in one case also a helicopter, to disrupt cargo ships in the Red Sea close to the Bab-el-Mandeb strait.

They have vowed to continue attacks until Israel halts the conflict in Gaza.

A couple of days back the US military opened an attack on Houthi rebels killing “10 Houthi fighters” and sinking “three of the Yemeni armed group’s vessels after a clash in the Red Sea”.

The impact

Several commercial ships have reported the impact of the missiles in surrounding waters, according to CENTCOM — the United States Central Command.

Multiple shipping lines have suspended operations through the region or preferring to take a longer journey around Africa due to the deteriorating security situation, according to reports.

Delayed transit times will add to freight costs that will only be borne by consumers, say experts.

Many shipping lines have declared ‘Force Majeure’ which temporarily relieves them of their normal contractual obligations.

Force Majeure means “unforeseeable circumstances that prevent someone from fulfilling a contract”.

For example, following heavy rains and floods in December some trade members had urged the Chennai Port Authority and the VO Chidambaranar Port Authority in Thoothukudi to declare Force Majeure at the ports of Chennai and Thoothukudi, respectively.

What next

Experts say threats to shipping in the Gulf of Aden are not new. The region has seen episodes of attacks by Somalian pirates but the recent incidents can have long-term impact on various economics depending upon trade of food and fuel.

The Red Sea — a seawater inlet of the Indian Ocean between Africa and Asia — is a  busy trade route of Suez Canal at its northern end and the Bab el-Mandeb Strait at the southern end leading into the Gulf of Aden.

According to reports, as many as 20,000 ships pass the Suez Canal every year.

Panama Canal and drought

Last year around August, a drought made worse by the El Nino phenomenon forced the authorities managing the Panama Canal —one of the world’s main maritime trade routes — to reduce ship crossings.

Due to low water levels in the lock system, the Panama Canal Authority, the agency of the government of Panama responsible for the operation and management of the Panama Canal, imposed transit restrictions on the key route connecting the Atlantic Ocean with the Pacific Ocean, dividing North and South America.

Just recently the authorities said they will increase the number of booking slots at Panamax and Neopanamax locks from mid-January, as per reports.