Red Sea shipping volume has dropped by 55 percent on a year-on-year basis in the first quarter of 2024 and 64 percent year-on-year in March, according to the International Monetary Fund (IMF).
IMF stated that so far, equivalent to 2 percent of 2023 global maritime trade which is about 2,900 ships has been diverted from the Suez Canal since the onset of disruptions in mid-December.
BusinessDay reports that there were trade disruptions in the Red Sea near Bab el-Mandeb Strait due to attacks on commercial ships and the development reduced ship traffic since 16 December 2023 till date.
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Attacks on commercial ships prompted shipping companies to re-route traffic away from the Red Sea, a systemically important shipping lane that facilitates about 15 percent of global maritime trade volume and over 22,000 transit calls annually.
Many economies in the Middle East, Europe, Asia, and Africa rely heavily on the Red Sea shipping lane for exports and imports. It is crucial for oil exports from the Middle East to Europe and from Russia to Asia.
As of the last weeks of December 2023, shipping companies have diverted about $80 billion worth of cargo away from the Red Sea due to the threat of attacks from Houthi militants in Yemen.
Carriers re-routed vessels as a direct result of strikes in the Middle Eastern body of water since the start of the Israel-Hamas war in October.
About 121 container vessels were sailing the long way around Africa instead of cutting through the Red Sea and the Suez Canal, according to Kuehne+Nagel.
The total container capacity of these vessels was 700,000 twenty-foot equivalent units (TEUs.),” Paolo Montrone, senior vice president and global head of trade sea logistics at Kuehne+Nagel, told CNBC.
Similarly, war risk insurance premiums on cargo ships shot up following the war-like situation in the Red Sea with many insurance companies even unwilling to cover cargo sent on voyages transiting the area.
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The war risk premium, which increased from 0.05 percent to 0.7 percent in early December, shot up to 1 percent of the value of the ship then.
It was estimated that the premium to be shelled out by shipping firms will be $2 million if the cost of the ship is $200 million. If the situation worsens, the rates are likely to go even higher, insurance officials in Mumbai, said.
Saurabh Verma, managing director of Global Insurance Brokers, said the Red Sea scenario typically falls under the category of war risk for marine insurance.
A report compiled by Afrexim Bank on the implication of the Red Sea attacks on African trade and macroeconomic stability, said African countries face the risk of accelerating inflation following the attacks on ships using the vital trade route.
