In a significant development, the United Nations Security Council has tabled a resolution this week, jointly sponsored by the United States and Japan, urging an urgent cessation of attacks on commercial shipping within the Red Sea.
Gaining approval with 11 favourable votes, the resolution unequivocally condemns the numerous assaults that have transpired in recent months and advocates for an instantaneous cessation of all hostilities.
Impact on Global Trade
Arsenio Dominguez, the Chief of the International Maritime Organization (IMO), previously highlighted the potential repercussions, stating that rerouting shipping lines could extend journey times by an estimated 10 days. This, in turn, is expected to impact international trade and lead to a surge in freight rates.
In response to the escalating situation, major shipping lines have announced plans to levy additional charges to counter the rise in operational expenses stemming from vessel diversions.
Welcoming the resolution, Dominguez remarked, “I applaud and endorse the United Nations Security Council’s resolution affirming that the exercise of navigational rights and freedom by merchant vessels, in accordance with international law, must be upheld.”
“The entire global community relies on international shipping. Seafarers, ships, and cargoes should not be subjected to attacks. It is imperative that we collaboratively strive to ensure the safety of seafarers, uphold freedom of navigation, and maintain the stability of supply chains.”
Escalation in Shipping Costs
The ramifications of this disruption and rerouting are acutely felt in two primary cost components: insurance and fuel.
With no immediate resolution in sight, insurance costs have skyrocketed as maritime companies worldwide grapple with ongoing challenges. Simultaneously, fuel costs, as reported by Container xChange, have surged by approximately 20-23% for routes via the Cape of Good Hope compared to the traditional Suez Canal route.
Christian Roeloffs, the Co-founder & CEO of Container xChange, emphasized that ultimately, the end consumer bears the brunt of the freight cost. He explained, “In the short term, intermediaries may absorb some costs, having committed to certain prices. However, under normal circumstances, the per-unit price is marginally adjusted for the end consumer in the event of such disruptions.”
The Red Sea, a critical waterway facilitating 12% of global trade, serves as a vital conduit linking the Mediterranean and the Indian Ocean, thereby connecting Europe to Asia. The current situation underscores the urgent need for diplomatic efforts to safeguard maritime security and preserve the smooth functioning of global trade routes.