The ongoing Houthi-driven onslaught on commercial shipping in the Red Sea has kept most ships away from the waterway for the first half of 2024. But seafaring dangers aside, ships may not have much other incentive to go back when calculating the costs involved.
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“For many shipping companies, the combined costs of crew bonuses, war-risk insurance (roughly 1,000 percent more than pre-war costs), and Suez transit fees make the additional time and financial costs traveling around Africa less expensive by comparison,” according to an assessment of the Houthi attacks released June 12 by the U.S. Defense Intelligence Agency.
The added war-risk costs provide even more rationale to go around the Cape of Good Hope. As of mid-February, insurance premiums for Red Sea transits have risen to 0.7 percent to 1 percent of a ship’s total value, compared to less than 0.1 percent prior to December 2023.
That’s not to say there aren’t added costs as a result of the longer voyages, which take anywhere from one to two weeks extra of transit time. The Defense Intelligence Agency report said each voyage around Africa adds roughly $1 million in fuel costs on average.
In total, the alternate shipping routes around Africa add about 11,000 nautical miles, the agency said.
The report indicated that container shipping through the Red Sea declined 90 percent between December and February. The impact has been felt on a global scale, with at least 65 countries having been affected by the need to divert cargo around Africa.
On top of that, 29 major shipping and energy companies have altered their routes to avoid the Houthi attacks. This includes the major ocean carriers like Mediterranean Shipping Company (MSC) , Maersk , CMA CGM, Hapag-Lloyd and Cosco Shipping, as well as global logistics giants like C.H. Robinson and Kuehne+Nagel.
The Suez Canal itself has endured a major financial blow due to the avoidance of ships, which has prevented the gateway from collecting the elevated transit fees.
According to a recent report from Egypt’s Al-Mal News, revenues of the Suez Canal dropped by 64.3 percent to approximately $337.8 million, compared to $648 million recorded in May 2023.
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The number of vessels transiting the canal in May also dropped 53.6 percent to 1,111, down significantly from than 2,396 ships that crossed during the year-ago period. As a result of reduced ship traffic, the cargo volume passing through the Suez Canal dropped by 68.5 percent last month to about 44.9 million metric tons. In May 2023, the total cargo tonnage was 142.9 million metric tons.
To incentivize more ships to travel through the gateway, the Suez Canal Authority (SCA) is extending fee discounts for a range of vessels on selected long-distance trades. SCA had first introduced the fee reductions in January, with some discounts as high as 75 percent for product tankers and crude carriers on voyages between Americas and Asia. The discounts will remain in effect until the end of 2024.
Since Nov. 19 the Houthis have launched about 190 attacks, said the Pentagon’s deputy press secretary Sabrina Singh in a media briefing Monday.
At the briefing, a reporter asked Singh how the U.S.-led Operation Prosperity Guardian maritime protection force in the area could be called a success based on the 90 percent decrease in shipping highlighted in the report.
“We have seen loss of life…but overall, when you’re talking about 190 attacks and a handful getting through on ships and some being able to continue underway, I think that speaks tremendously to our efforts,” Singh said. “We certainly understand the global impact and the effect on global commerce if shipping routes have to be rerouted through longer sea pathways. That does have an impact on global shipping, but of course that is up to the carriers to decide what they do.”
On June 12, the Houthis attacked a bulk carrier, Tutor, killing one crew member. This was the first time since March that an attack resulted in deaths, when three seafarers were killed on bulk carrier True Confidence. A day later, the Iranian-backed militant group struck another bulk carrier, Verbana, across two separate missile attacks. The crew abandoned ship due to continued fires and an inability to control them, but were recovered by another vessel.
In the latest update from U.S. Central Command (Centcom) Monday, the defense force said that forces destroyed four radars and one uncrewed surface vessel in Houthi-controlled areas of Yemen. Additionally, Centcom forces successfully demolished one Houthi uncrewed aerial vehicle over the Red Sea.
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