German institute sees lower Red Sea trade post attacks but no fallout

DPA
·3 min read
Stefanie Hinz, state police chief of Baden-Wuerttemberg, sits and speaks during a press conference at the Offenburg police headquarters. The attacks on merchant ships in the Red Sea are severely impacting global maritime container traffic, with volumes in the area down by nearly 70% of anticipated cargo, a leading German economic institute reported on Thursday. Philipp von Ditfurth/dpa

The attacks on merchant ships in the Red Sea are severely impacting global maritime container traffic, with volumes in the area down by nearly 70% of anticipated cargo, a leading German economic institute reported on Thursday.

The Kiel Institute for the World Economy (IfW) said container volume in the Red Sea "plummeted by more than half and is currently almost 70% below the volume that would usually be expected."

"The detour of ships due to the attacks in the Red Sea around the Cape of Good Hope in Africa means that the time it takes to transport goods between Asian production centres and European consumers is significantly extended by up to 20 days," said Julian Hinz, director of the Trade Policy Research Center and new head of the Kiel Trade Indicator.

However, Hinz does not expect any consequences for consumer prices in Europe.

Since the outbreak of the Gaza war between Israel and the Islamist Hamas, Iran-backed Houthi rebels have repeatedly attacked ships with an alleged Israeli connection in the Red Sea.

Major shipping companies are increasingly avoiding the route. Around 10% of all global trade passes through the Red Sea. The Suez Canal connects the Mediterranean with the Red Sea, making it the shortest sea route between Asia and Europe.

IfW economists record global shipping movements in real time. This enables them to analyze very precise distortions in the transport chains on the world's oceans.

Cargo volume via the Red Sea is currently only around 200,000 containers per day, down from around 500,000 containers in November, the IfW said.

"This means that the current volume is 66% below the volume actually expected," based on freight volumes for 2017 to 2019.

Instead of travelling through the Red Sea, the ships are now sailing around Africa and the Cape of Good Hope, with the diversions taking seven to 20 days. The longer journey time has significantly increased the prices for container transport - known as freight rates in industry jargon.

The institute says transporting a 40-foot standard container between China and Northern Europe now costs $4,000 versus $1,500 in November.

"However, the current price is still a far cry from the drastic spikes during the coronavirus pandemic, when transporting a container on this route cost up to $14,000," the IfW said.

Despite the more than doubling in cost, "no noticeable consequences for consumer prices in Europe are to be expected," Hinz wrote.

This is because especially for high-priced items like consumer electronics, freight costs make up only a fraction of the goods' value.

Major disruptions in the supply chains are also not expected. Hinz said today's situation "is not comparable" to either the coronavirus lockdowns that led to a drastic reduction in supply of goods - and a corresponding explosion in European demand - or to the Ever Given blockage of the Suez Canal in 2021, when a container ship ran aground in the canal, halting world trade there for six days.

The IfW does anticipate however "slightly longer delivery times for products from the Far East" and increased freight costs, but believes the container ships can adjust quickly to this.

"No negative consequence for global trade are to be expected," Hinz concluded.