The growing number of attacks by Yemen’s Houthi rebels on ships in the Red Sea amid the conflict between Israel and Hamas is raising concerns about their impact on global trade, including in Canada.
Two of the world’s largest shipping companies, Maersk and Hapag-Lloyd, announced Friday they were suspending operations on the crucial trade route. This could lead to a domino effect on goods passing through the Red Sea, through which around 10 percent of global trade passes.
Although Canada does not directly operate any cargo ships in the Red Sea, the domestic shipping industry maintains direct relationships with these and other companies that transport goods to and from global markets.
“Any major disruption to trade flows in this region could have a downstream effect on the movement of goods to and from Canada in the future,” said Chris Hall, President and CEO of the Maritime Federation of Canada.
What is happening in the Red Sea?
Since Israel began its military response to brutal Hamas attacks on October 7, Iran-backed Houthi rebels in Yemen have stepped up attacks on commercial and military shipping in the Red Sea. The attacks, involving drones and ballistic missiles, reportedly targeted ships heading towards Israel in a bid to stop its attacks on the Gaza Strip.
Last month, the Houthis used a helicopter to seize cargo ship linked to Israelthe Galaxy Leader and his crew, an operation which was filmed.
But in recent days, attacks have focused on cargo ships with no apparent connection to Israel. The most recent saw a ballistic missile hit the MSC Palatium III, a Liberian-flagged container ship which then caught fire. It was not immediately clear whether anyone on board was injured.
Yemen’s Houthi rebels seize ship linked to Israel in Red Sea, Iran denies involvement
The strike came hours after another on the Hapag-Lloyd-owned Al Jasrah ship, which also flies the Liberian flag and was heading from Egypt to Singapore.
Private intelligence firm Ambrey said a “projectile” hit the port side of the ship and caused a fire on board.
A company spokesperson told Global News that no crew was injured in the attack, but that it was “suspending all container ship traffic through the Red Sea until Monday.” date on which it would “decide on the following period”.
Maersk announced a missile launch on Thursday did not hit his ship from Gibraltar, who was traveling from Oman to Saudi Arabia, despite the Houthis’ claims. The company said alleged videos of a strike actually showed a fire aboard another Maersk ship in 2018.
However, Maersk said it had asked all vessels destined to pass through the Bab al-Mandab Strait, at the southern tip of the Red Sea, to “suspend their journey until further notice” following the “incident narrowly avoided.”
“Recent attacks on commercial vessels in the region are alarming and pose a significant threat to the safety and security of seafarers,” a company spokesperson told Global News in a statement.
How is global trade affected?
The Red Sea has the Suez Canal at its northern end and the narrow Bab el-Mandab Strait at its southern end leading to the Gulf of Aden. It is a busy waterway, with ships passing through the Suez Canal to transport goods between Asia and Europe, as well as North America.
These goods range from high-end manufactured components to personal goods, industrial supplies and food products.
Much of Europe’s energy supplies, such as oil and diesel fuel, also pass through this waterway, according to the International Chamber of Shipping, which represents 80 percent of the world’s commercial fleet.
Hall points out that global trade was recently affected by a very different crisis in the region, when the Ever Given ran aground and blocked the Suez Canal for almost a week in 2021.
“The disruption to trade flows in this region was so significant that it took several months before trade returned to normal,” he said.
The canal blockage forced some ships at the time to take the long alternative route around the Cape of Good Hope at the southern tip of Africa, requiring additional fuel and other costs. Hundreds of other ships were waiting on site for the blockage to end.
At the time, analysts predicted the blockage would disrupt about $9.6 billion in global trade a day and that oil prices in Europe would rise due to shortage fears.
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In Canada, this has led to a backlog of container ships waiting to unload, as everything from port schedules to trucking routes have also been affected by the growing delays.
A similar outcome could happen now if the security situation in the Red Sea deteriorates, Hall says.
“Will it be immediate? Probably not,” he said. “But could there be an effect a little later? It’s entirely possible.
He added that Canada and the rest of the world are already seeing the security implications on global trade from Russia’s invasion of Ukraine, which has affected grain shipments from the Black Sea that supply dozens of other countries.
Analysts say the biggest immediate impact of the Houthi attacks has been an increase in insurance costs for commercial shippers.
Lloyd’s List Intelligence told The Associated Press that insurance costs have doubled for shippers transiting the Red Sea, which can add hundreds of thousands of dollars to the journey of the most expensive ships.
For Israeli shipowners, they have increased even more – by 250 percent – and some insurers don’t cover them at all, said David Osler, the company’s insurance editor.
These higher costs are unlikely to be passed on to consumers unless attacks significantly intensify, international experts say.
“Right now, this is just an inconvenience that the system can handle,” Osler said. “No one likes paying hundreds of thousands of dollars more, but you can live with it if you have to.”
Yemen’s Houthi rebels claim responsibility for Israeli attacks
The United States has increased its military presence in the Red Sea, and in recent weeks its ships have shot down missiles fired from Yemen that officials say were launched by the Houthis toward Israel.
US Defense Secretary Lloyd Austin spoke with his British counterpart on Friday about the escalation of Houthi attacks, highlighting the threat to “civilians and global shipping”, according to a Pentagon statement. The United Kingdom also has military ships in the region.
Hall says shippers are unlikely to permanently avoid the Red Sea, as it is the most direct – and therefore most profitable – route in the region. He and other industry figures say steps will be taken to protect these shipping routes before taking the more costly and time-consuming step of rerouting.
“One thing business doesn’t like is unpredictability,” Hall said.
—With files from the Associated Press