Shipping Giants Pause Red Sea Voyages, Dealing Blow to Global Trade

By Alaric Nightingale and Sanne Wass (Bloomberg) —

Spiraling attacks on merchant ships by Houthi militants off the coast of Yemen have prompted widespread trade disruption with some of the world’s biggest vessel owners evaluating whether it’s safe to send crews through the Red Sea.

Two of the world’s largest container shipping lines said on Friday that they were pausing transits through the Red Sea after their vessels were attacked. Two oil tanker companies have now said they are insisting on a clause in charters that will allow them to send their ships around Africa if they deem the waters off Yemen unsafe.

The moves will increase pressure on the US and its allies to improve security along one of the world’s most important trade corridors to avoid undermining the global economic recovery. An international trade group called for more military support to end the attacks.

The US “will continue to consider options and take coordinated, multilateral action to confront these unacceptable threats and attacks in the Red Sea,” said White House National Security Council spokesman Eduardo Maia Silva. 

Houthi militants have been attacking more and more merchant ships in the Red Sea — especially vessels that they claim are connected to Israel — in response to the war in Gaza. 

A.P. Moller-Maersk A/S, the world’s second-largest owner of container ships, said in a statement on Friday that it has instructed its vessels heading for the southern entrance of the Red Sea to pause their voyages. Its vessel Maersk Gibraltar was attacked.

Shortly after Maersk’s announcement, Germany’s Hapag-Lloyd AG announced a halt until Monday, “then will decide for the period after.”

“Following the near-miss incident involving Maersk Gibraltar yesterday and yet another attack on a container vessel today, we have instructed all Maersk vessels in the area bound to pass through the Bab al-Mandab Strait to pause their journey until further notice,” Maersk said.

Bab al-Mandab is a narrow stretch of water that links the Indian Ocean to the Red Sea. Any ship using the Suez Canal as a shortcut between Asia and Europe must go through it it.

Maersk said its No. 1 priority was the safety of its crews, highlighting the challenge of balancing its customers’ needs against the duty to look after the staff. Sailing the long way around Africa would add thousands of miles to trade routes, boost fuel bills and delay cargo deliveries.

Euronav NV, an owner of oil supertankers, said it was insisting that its vessels be granted an option in all charters to avoid the Red Sea. On Thursday, Maersk Tankers said the same thing after one of its vessels was attacked.

Economic Risks

While it’s unclear how long-lasting Maersk and Hapag-Lloyd’s pauses will ultimately be, such steps underscore how serious and potentially economically damaging the attacks could be. Maersk owns a fleet of over 300 ships. Hapag-Lloyd ranks eighth, according to data from Clarkson Research Services Ltd.

About 12% of global trade depends on the Suez Canal and 5% on the Panama Canal, according to Marco Forgione, director general at the Institute of Export & International Trade. Panama is disrupted by drought.

“They are fundamental to the flow of international trade,” he said. “Without them operating smoothly, the domino effect of damage and disruption to supply chains caused by ships delayed and in the wrong places will be substantial.”

The Houthi attacks appear to have escalated in the past several days with individual ships’ connections to Israel becoming less obvious. That suggests risks are widening for the industry at large, with insurance costs climbing. At least three container ships have been attacked or disrupted near Yemen in the past day or so.

Maersk’s decision in particular will add new urgency to a US push — in the works for weeks — to form a maritime task force that will protect ships traveling through the Red Sea from Houthi attacks. White House and Pentagon officials have said the Biden administration is working with partners to form that group, with an announcement expected any day.

The Biden administration will work to strengthen and expand the maritime force, pursue “targeted efforts” at the United Nations, review potential terrorist designations for the Houthis and work with allies, Silva said. US Defense Secretary Lloyd Austin spoke with his UK counterpart, Grant Shapps, about the attacks, which now pose “a significant international problem that must be addressed” given their scale and intensity, the Pentagon said in a statement.

Snarl Trade

More broadly, the attacks will also add pressure on the US to respond to the Houthis at source, possibly with military strikes to eliminate drones and missiles before they’re launched. 

The administration has resisted taking military action against the Houthis for fear of provoking a regional war, but officials including US Deputy National Security Advisor Jon Finer have acknowledged they’re not ruling out strikes.

Disruptions in the area can snarl supply chains and world trade. Back in 2021, the grounding of the Ever Given blocked the Suez Canal for almost a week, throwing ships off schedule for months and tightening the available cargo space. That accident was estimated to have cut capacity by 20% to 30% for several weeks.

“We are deeply concerned about the highly escalated security situation in the southern Red Sea and Gulf of Aden,” Maersk said in its statement Friday. “The recent attacks on commercial vessels in the area are alarming and pose a significant threat to the safety and security of seafarers.”

Military Pressure

The International Chamber of Shipping, which represents the shipping industry, on Friday praised the actions of naval forces that had assisted vessels so far. It called for the support of the full naval security forces in the region to prevent any more attacks on shipping. It also said more ships are considering diverting away from the Red Sea.

Earlier, the Yemen-based — and Iran-backed — Houthi militants said they attacked the MSC Alanya and MSC Palatium III with naval missiles. Maersk’s vessel, Maersk Gibraltar, was the target of an attack that missed on Thursday.

The ships were targeted after refusing to respond to warnings from “Yemeni naval forces,” Houthi spokesman Yahya Saree said during a protest for Gaza. 

Hapag-Lloyd also said one of its vessels, the Al Jasrah, was attacked in the Red Sea on Friday. 

Maersk’s notice on Friday didn’t say what would happen next. The company deals with the world’s largest retailers.

“We are committed to best possibly ensuring the stability of our customers’ supply chains, and we are working closely with all our logistics teams and are taking steps to minimize impacts to customers,” it said.

© 2023 Bloomberg L.P.