Red Sea Diversions Have Cost the Suez Canal $2 Billion
The ongoing Houthi attacks in the Red Sea and neighboring Gulf of Aden have cost the Suez Canal a pretty penny.
The Suez Canal Authority (SCA) saw revenue dip more than $2 billion in the 2023-2024 fiscal year, as the onslaught on commercial vessels has forced ocean carriers to divert container ships around southern Africa’s Cape of Good Hope.
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Osama Rabie, the head of the Egyptian canal’s authority, said on Thursday revenues fell to $7.2 billion in its financial year from $9.4 billion the year before, a 23 percent drop. Total tonnage through the canal has fallen by a third to 1 billion tons from 1.5 billion in 2022-2023 season. Since the diversions only took up half of the fiscal year, current traffic suggests that next year’s numbers will be even lower unless the security situation improves.
The canal’s concerns don’t appear to be easing any time soon, as more industry stakeholders anticipate the Houthi attacks to continue into 2025. Container ships have largely avoided the canal since December, weeks after the Yemen-based militant group began launching their missile and drone attacks on vessels.
Houthi representatives have claimed since the start of the attacks last November that they are in response to the Israel-Hamas war in Gaza.
Even if the assaults were to end immediately, there’s no guarantee the Suez Canal would be able to get its traffic back immediately.
According to a Hapag-Lloyd spokesperson, even after declaring that voyages can return through the Suez Canal, it would take at least four to six weeks to rearrange schedules and for operations to return to normal.
The revenue decline raises concerns for the economy of Egypt. Revenues from the Suez Canal account for roughly 2 percent of Egypt’s gross domestic product and are an important source of foreign currency.
While the lack of ships is putting the canal under more financial distress, and forcing shippers to pay up more as vessel capacity decreases, the container shipping firms avoiding the waterway are seeing a windfall of cash.
The first quarter of 2024 saw ocean carrier giants reel in $5.4 billion in net profit, according to an analysis from container shipping expert John McCown.
Both Maersk and Hapag-Lloyd have already raised their annual guidance twice due to the better-than-expected profits, which have aligned with escalating ocean freight rates.
While Drewry’s World Container Index (WCI) went up 1 percent yesterday on a week-over-week basis to $5,937 per 40-foot container as of Thursday, those rates have soared nearly 330 percent from $1,382 per container as of Nov. 30.
Other major effects have been felt due to the avoidance of the Red Sea, as the schedule changes from the detour around Africa have created “vessel bunching” at key transshipment ports, which has led to port congestion in some of the busiest global gateways, including Singapore, China’s Ports of Shanghai and Ningbo and Malaysia’s Port Kelang.
Vessel deployments have also been shuffled and reorganized on trade lanes around the globe to free up more tonnage for the Cape of Good Hope route, with Maersk saying that the industry has lost up to 20 percent of capacity due to the lengthier Asia-to-Europe voyage.
Maersk CEO Vincent Clerc even admitted that the container shipping giant will be missing vessel capacity in the coming months, and will rely on some ships of different sizes than usual, which will “imply reduced ability for us to carry all the demand that there is.”
Since February, the U.S. and the U.K. have been launching air strikes on Houthi targets in Yemen intended to weaken the capabilities of militants. However, the strikes have done little to deter the Iran-backed rebel faction.
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