Is a new crisis on the way in the supply chain?

Rising security concerns in the Red Sea are causing a change in shipping routes. There are concerns about inflationary pressures that will arise from increased costs as sea voyages are extended. Due to the attacks by Houthi militants in Yemen on commercial ships sailing in the Red Sea since November 19, the world's largest container line operators have announced that they have decided to suspend their Red Sea voyages one after the other. The world's largest container company, Mediterranean Shipping Company (MSC), announced that its ships will not pass through the Suez Canal in the east or west directions until the Red Sea passage is made safe. MSC, which has suspended Red Sea voyages, is among the world's top 5 container shipping companies, including Danish Maersk, French CMA CGM and German Hapag-Lloyd. The 4 companies account for approximately 55 percent of the global container shipping market. British oil company BP announced that it has suspended oil shipments via the Red Sea, while Taiwanese company Evergreen announced that its ships serving Mediterranean ports will use the Cape of Good Hope route instead of the Red Sea. Alternative routes to the Red Sea Ships passing through the Bab al-Mandab Strait, which connects the Red Sea to the Gulf of Aden and the Indian Ocean, reach the Mediterranean from the Red Sea via the Suez Canal. It is stated that the Red Sea route shortens sea voyages by 9 to 14 days depending on the departure and arrival ports compared to alternative routes. Ships that do not use the Red Sea route head towards the Cape of Good Hope in southern Africa. Maritime transport experts emphasize that the biggest problem at this point is the longer voyage times, the increasing costs and the possible congestion at the transfer ports. How much will the costs increase in maritime transport? Fatih Şener, Vice President of the International Freight Forwarders Association (UND), stated that the Cape of Good Hope route instead of the Suez Canal will extend voyage times by 20 to 30 days, which will increase transportation costs. Şener noted that the cost of a container to come from China to Turkey was between $2,000 and $2,500 before the attacks, and that this figure rose to $5,500 after the attacks. Başaran Bayrak, Chairman of the Chamber of Shipping for Istanbul and the Marmara, Aegean, Mediterranean, Black Sea Regions (İMEAK), stated that if ships going from the Far East to Europe round the Cape of Good Hope instead of passing through the Red Sea, the distance would increase by at least 5-6 thousand miles and that voyages that used to be completed in 40-45 days would be extended by at least 20-25 days. “Transportation is facing a crisis” Başaran Bayrak emphasized that there would be a serious increase in the number of ships needed due to the delivery time of ships having to travel the additional distance being postponed by 20-25 days, and said, “We need one-third more ships so that that cargo can be carried. Transportation is facing a crisis.” Bayrak said that the longer distance and the increased number of ships would have a negative impact on freight. Bayrak stated that prices, which have been on a downward trend in container transportation for a while, have started to rise again following the attacks in the Red Sea, and that the increase in freight will be reflected in production costs. What will be the impact of the Red Sea crisis on Turkey? Başaran Bayrak, who stated that the security crisis in the Red Sea will cause the voyage times of ships coming to Turkey to be extended at least two-fold, predicted that the crisis will also increase the relatively cheap export freight rates by up to two-fold. UND Vice President Fatih Şener said that the diversion of maritime transportation from the Red Sea to the Cape of Good Hope will lead to an increase in the costs of companies producing in Turkey using inputs from China, and that on the other hand, it is positive for Turkish companies competing with Chinese products in the domestic market and in Europe. Şener stated that the extension of voyage times and the increase in costs are negative for trade with China; Başaran Bayrak predicted that China will take rapid action to solve the problem. He argued that just as Egypt could not afford to lose revenue from the Suez Canal, most countries could not ignore the serious interests in trade via the Red Sea. “Insurance costs could increase up to fivefold” It was reflected in the news that the premiums requested for war insurance in the region had started to increase due to the rising Houthi threat in the Red Sea. Umut Can, Technical Manager of Turkish P&I Insurance Company, stated that the Red Sea has always been a problematic region in terms of war risks in maritime insurance and underlined that some risks were already materializing in the region. Stating that the war risk premium could be the largest item in the insurance cost of a ship that is supposed to go to places with a high war risk, Umut Can emphasized that following the start of the attacks on Gaza, war insurance premiums for Israeli ports increased three to fivefold and that a similar increase in war insurance premiums could be expected for the Red Sea route in an adverse scenario. Umut Can said that war insurance premiums for ships that will sail in the Red Sea are; He noted that this will vary depending on the change in war risks, the change in the risk profile in the region, the extent to which the military power that the US and the UN will have in the region can suppress these attacks, and whether the possible political engagement with the Houthis will create an expectation that the attacks will decrease or stop. Emphasizing that each insurance company sets pricing according to its own risk perception, Can stated that whether the ship has hijack or ransom insurance and additional security measures on the ship are also taken into consideration. Commodity Markets Expert Zafer Ergezen stated that the disruption of shipping by attacks in the Red Sea and its immediate vicinity will have a primary impact on oil prices. Reminding that oil travels to the Far East and Africa via the region in tankers, Ergezen emphasized that the attacks push oil prices up and that whether prices will rise further will be determined by the duration, scope and extent of the attacks in the region. “We can see the first effects in agricultural commodities” Stating that the disruption in the most advantageous route in maritime transportation will create pressure on prices and that risk pricing may also occur, Ergezen said; “There will be problems especially in the cargoes coming from the Far East and being transported there. We can see the first effects with upward pricing in agricultural commodities because agricultural trade from the Red Sea route to the Far East and Africa is high. If this process continues, there will be problems not only in terms of commodities but also in the sustainability of trade. The cost of trade will increase, which is a serious burden for everyone.”