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Global trade falls amid Houthi attacks on merchant ships in Red Sea

Global trade falls amid Houthi attacks on merchant ships in Red Sea
Jack Simpson and Sarah Butler 11 Jan 2024

Global trade fell in December as Houthi attacks on merchant ships in the Red Sea disrupted operations. The boss of the world’s biggest shipping line has said it could take months before the trade route is safe to traverse.

Global trade dropped by 1.3% in December, with a significant fall in shipments in the Red Sea driving that fall, according to figures from IfW Kiel.

A report by the German economic institute found that the number of containers travelling daily through the Red Sea fell by 60% from 500,000 in November to 200,000 last month.

Iran-backed Houthi rebels in Yemen have launched 25 attacks on commercial vessels in the Red Sea since November, forcing shipping lines to suspend passage through the key trade route and reroute elsewhere.

On Thursday, the Iranian navy confirmed it had seized an oil tanker associated with a Greek shipping company in the Gulf of Oman, prompting fears the disruption could escalate and spread to the Gulf.

Separately, Vincent Clerc, the chief executive of the global shipping company Maersk, said the Red Sea disruption could last for months. He said the attacks by Houthi militants were “brutal and dramatic” and could lead to further inflation across the global economy.

He told the Financial Times: “It’s unclear to us if we are talking about re-establishing safe passage into the Red Sea in a matter of days, weeks or months …  It could potentially have quite significant consequences on global growth.”

Last week, Maersk, which is responsible for moving 20% of global trade each year, decided to divert all of its ships around the southern tip of Africa after two of its vessels were attacked in December.

Clerc said: “At this time when inflation is a big issue, it’s putting inflationary pressure on our costs, on our customers, and ultimately on consumers in Europe and the US. In the short run, it could cause significant disruptions at the end of January, February and into March.”

According to IfW Kiel’s report, titled “Cargo volume in the Red Sea collapses”, the EU was the worst hit in December, with exports dropping by 2% and imports falling by 3.1%. The US had imports drop by 1.5% and exports fall by 1%.

Retailers have said problems in the Red Sea could lead to inflation and some availability issues if container ships kept having to divert around Africa. They said longer journey times would add some costs, but that overall freight costs would rise if more vessels were caught up in delays, reducing the amount of available global shipping capacity.

Stuart Machin, the chief executive of Marks & Spencer, said availability of some items – mainly clothing – may be affected in February and March, and alcohol deliveries could also be affected. However, Machin suggested M&S was likely to be able to absorb the increased costs unless the problems ground on for months.

Simon Wolfson, the chief executive of Next, said the problems meant clothing prices were likely to remain steady, when he had hoped they would drop this spring.

Tesco said the problems in the Red Sea might lead to more inflation as extended shipping times would diminish capacity in the system and drive up prices.