Slow boat from China: Implications of soaring shipping costs

Summary

Red Sea attacks are increasing the time and cost of shipping, and the impact is felt far beyond the Asia–Europe trade route. That said, this is not a replay of the global supply chain crisis of 2021–2023. The absence of extreme shocks in both supply and demand relative to that period means that, although importers will continue to feel the pinch, higher shipping rates are unlikely to be fully passed on or to spur a rebound in inflation.

"Fate, it seems, is not without a sense of irony"

At the southern tip of Africa, the warm water from the Indian Ocean meets the cool current coming up from the Antarctic, resulting in stormy weather. When first encountered in 1488 by Portuguese explorer Bartolomeu Dias, he called it Cabo das Tormentas, or “Cape of Storms”. Portuguese King John II later changed the name to “Cape of Good Hope” to encourage exploration and give mariners faith they could reach India by sea. It worked. The Cape Sea Route became well traveled, and the cape itself became a significant port and waypoint for sailors traveling between Europe and Asia.

When the Suez Canal opened in 1869, it provided a much shorter route from the Mediterranean Sea to the Indian Ocean, making the long trip around Africa inefficient. Maybe Morpheus was right about fate. Houthi militant attacks on commercial ships going through the Bab al-Mandab Straight, which connects the Red Sea and the Gulf of Aden, have made travel toward the Suez Canal prohibitively dangerous. June saw the largest number of ships attacked since last December, when more vessels were moving through the area. The attacks have caused chaos in a globally important trade region and have been connected to a renewed rise in global shipping costs.

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