Why hasn’t the shipping industry returned to the Red Sea?

A container ship passing Suez cannal. Photo: HladchenkoViktor/Adobe Stock/Phaata

When President Trump ordered airstrikes against Houthi forces in Yemen last weekend, he said the group’s attacks on cargo ships in the Red Sea had severely damaged global trade.

“These relentless assaults have cost the U.S. and World Economy many BILLIONS of Dollars while, at the same time, putting innocent lives at risk,” he wrote on the social media platform Truth Social.

But getting shipping companies back to the Red Sea and Suez Canal routes could take months and require more than airstrikes against the Houthis. For more than a year, most shipping lines have avoided the Red Sea route, instead rerouting their ships around the southern tip of Africa to Europe. The route is more than 3,500 nautical miles long and adds 10 days to the journey.

The shipping industry has adapted and benefited from higher rates

Shipping lines have adapted to the disruption and even benefited from a spike in freight rates after Houthi forces began attacking commercial vessels in late 2023 in support of Hamas in its conflict with Israel.

According to industry executives, they have no plans to return to the Red Sea unless there is a comprehensive peace deal in the Middle East that includes the Houthis, or the militant group is completely defeated.

“It’s either a full degradation of their capabilities or there is some type of deal,” Vincent Clerc, CEO of Maersk, said in February.

After this week’s US airstrikes, Maersk is not ready to return. “Prioritizing crew safety and supply chain certainty and predictability, we will continue to sail around Africa until safe passage through the area is considered more permanent,” a Maersk spokesperson said.

MSC, another major shipping line, echoed the sentiment: “to guarantee the safety of our seafarers and to ensure consistency and predictability of service for our customers.”

US ability to control the Houthis remains uncertain

It remains unclear how long it will take for the US to completely stamp out the Houthis, or whether that goal is even achievable. Lt. Gen. Alexus G. Grynkewich, the director of operations for the US Joint Chiefs of Staff, said the recent strikes were aimed at “a broader range of targets” than the Biden administration’s airstrikes. However, he also cast doubt on the Houthis’ true capabilities.

However, Middle East experts say the Houthis have proven resilient against much stronger forces and can act independently of Iran.

“A military solution alone, particularly one that is focused on airstrikes, is unlikely to be sufficient to defeat the Houthi by permanently halting their attack activity,” said Jack Kennedy, director of risk analysis for the Middle East and North Africa at S&P Global Market Intelligence.

The Houthis have slowed attacks on shipping since Israel and Hamas reached a ceasefire in January, and there have been no attacks on commercial vessels since December, according to data from the Armed Conflict Location and Event Data Project (ACLED), a crisis monitoring organization.

Shipping Lines Still Retreating to the Red Sea

However, major shipping lines have not yet returned to the Red Sea en masse.

In February, nearly 200 container ships passed through the Bab el-Mandeb Strait, the southern gateway to the Red Sea where the Houthi attacks have been concentrated. That’s up from 144 in February 2024, but still well below the more than 500 before the attacks, according to data from Lloyd’s List Intelligence.

The biggest shipping lines with large vessels are still avoiding the Red Sea, with the exception of France’s CMA CGM. However, their presence in the area remains limited and the company did not immediately respond to a request for comment.

One reason shipping lines are reluctant to return is the fear of having to abruptly adjust their routes if the situation in the Red Sea becomes dangerous again.

Shipping Lines Boost Profits By Going Around Africa

Despite the inconvenience and added costs, the route around Africa has helped shipping lines boost profits.

During the pandemic-induced global trade boom, companies have ordered hundreds of new cargo ships. Normally, a glut of ships would cause freight rates to fall, but that hasn't happened this time as shipping lanes have been rerouted around Africa, increasing demand for vessels and pushing up freight rates across all global routes.

Maersk last month predicted that its profits would have been higher if the Red Sea route had only reopened by the end of the year, rather than mid-year.

However, freight rates from Asia to northern Europe have recently fallen to their lowest since 2023, according to data from Freightos, a digital freight exchange.

The reason for the drop in freight rates is lower volumes shipped earlier in the year. In addition, the wave of imports into the US before Mr. Trump’s new tariffs took effect is almost over, and many businesses may be reducing orders in anticipation of weaker consumer demand in the coming months.

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Source: Phaata.com (According to The New York Tmes)

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