Navigating the Red Sea’s Turbulence: Shipping Disruptions and Financial Market Implications
The Red Sea, a vital artery of global trade, has been grappling with a series of disruptions that have sent shockwaves through the shipping industry and beyond. Today, we’ll look into what’s happening and how it could impact the markets. After that, we’ll go over the top trading events of the week ahead.
Wait, what happened?
The world’s largest shipping firms are continuing to pause shipments through the Red Sea after attacks by Houthi rebels. The Houthi movement officially known as Ansar Allah is a Shia Islamist political and military organization that emerged from Yemen in the 1990s.
In response and to protect the shipping lanes, the US and UK have carried out several airstrikes on Houthi bases in Yemen, in order to stop continued attacks along this crucial international trade route.
Why is the Red Sea so important to global trade?
As you probably know, the Red Sea connects Asia to Europe and Africa. About 10% of global trade transits through Suez, 12% of global oil, about 8% of LPG gas, and 30% of all container shipping passes through this corridor. This all makes it a crucial chokepoint for both global energy security and the global economy at large.
The Houthi attacks are causing huge disruption to shipping schedules and increasing transportation costs. Ships are diverting their routes around the Cape of Good Hope, a longer and more expensive journey that adds an estimated 10–12 days to transit times.
These delays and higher transportation costs have trickled down to consumers, leading to higher prices for goods such as fuel, food, and consumer electronics. The disruptions are also putting pressure on global supply chains.
This isn’t the first time shipping lanes have been tied up causing huge problems. In 2021, the Ever Given container ship was blocked in the Suez Canal for six days, causing a major disruption to global trade. And in 2019, the Maersk Tanjong Pagar container ship was attacked off the coast of Yemen, highlighting the growing threat posed by maritime piracy.
Financial impact
According to S&P Global Ratings, containership tonnage in the Red Sea dropped more than 80% in the second half of December 2023 as many shippers chose to play it safe, taking the extra 10 days to go around the Cape of Good Hope, avoiding this flashpoint.
Container freight rates have surged almost 300% with announced rate hikes of $6,000-$7,000 per 40-foot-long container.
Global container freight rate index from the 12th January 2023 to the 4th January 2024
Source: Statista
This cost of shipping is important, because the rise in costs will likely be felt most by consumers, whose pockets are already feeling the pinch due to record high inflation rates, particularly in the US and Europe.
China is also in panic-mode, as 95% of its exports rely on shipping. It’s even pressing Iran, a known sponsor of the Houthis, to deescalate attacks.
With the continued conflict in Gaza, Middle-Eastern stability is on a knife-edge and the major powers will hope they can successfully calm the situation down before the fires are flamed further.
Have the attacks affected your trades?
Has this turmoil impacted your trading? Have you adjusted your strategy to adapt? Tell us your story over on X, @_Contentworks.
Top fundamental events week commencing 29/01/24
Here are all of the key events this week. We hope you don’t have anything planned for Wednesday.
Monday
No major events are scheduled
Tuesday
● EUR — French GDP Growth Rate YoY Prel; German GDP Growth Rate YoY Flash
● USD — CB Consumer Confidence; JOLTs Job Openings
Wednesday
● AUD — Inflation Rate YoY
● CNY — Chinese NBS Manufacturing PMI
● JPY — Consumer Confidence
● EUR — French Inflation Rate YoY Prel; German Inflation Rate YoY Prel
● USD — ADP National Employment Report; Employment Cost Index QoQ; Employment Cost — Wages QoQ; Treasury Refunding Announcement; Federal Funds Rate; Fed Press Conference
Thursday
● CNY — Chinese Caixin Manufacturing PMI
● EUR — Inflation Rate YoY Flash
● GBP — Official Bank Rate; MPC Meeting Minutes
● USD — ISM Manufacturing PMI
Friday
● CHF — Consumer Confidence
● USD — Average Hourly Earnings MoM; Unemployment Rate; Nonfarm Payrolls; UoM Consumer Sentiment Index
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Speak soon!
The Contentworks team
