Waiting for an electoral sea change in the West in the hope of making Mideast progress
 As one cannot depend on what is said about Middle East politics, we must assess what few irrefutable facts there are. Before dealing with them, there are knowns that have been fully digested, and well described in an article in Hellenic Shipping News Worldwide, by Gabriel Fuentes, assistant professor in Shipping Economics and Analytics at NHH Norwegian School of Economics.
"Shipping companies," says Prof Fuentes, "face a costly dilemma in the Red Sea. Houthi attacks mean vessels passing through the Suez Canal risk being hit with ballistic missiles. The alternative is to go around the Cape of Good Hope, adding more than 8,000 nautical miles to the journey.
"The first option lands companies with higher insurance costs; the second means spending money on extra fuel. Either way, expenses are rising, and these costs will eventually hit consumers’ pockets," he said.
But there are two factors that have received far less attention. That is, China, namely its principal shipping company Cosco, has an exemption from the Houthi forces. Cosco Shipping will be spared airstrikes and missile attacks. But this hardly ends China's risk exposure because many, if not most ships that once ply the Red Sea to the Suez Canal are carrying EU-bound Chinese exports as well as imports on which Beijing depends.
Egypt is another big loser because it owns the Suez Canal and has lost 40 per cent of its trade, which indicates a good deal of intra-Med/Red Sea trade must have survived the crisis as well as a number of ships that will take their chances on the traditional Suez Canal route. That would provide rail and road access to Mecca, Riyadh and Dammam on the Persian Gulf and the oil-producing states.
The other big factor overlooked is having the Cape route forced upon the shipping world is well recalled by elders in the trade who remember the age of super tankers rounding the Cape after the 1967 Six Day War when the Egyptians closed the Suez Canal for nearly a decade.
Much has changed since, and much will change in consequence of the Red Sea crisis. The first change is the regulatory world in which the oil trade finds itself. It has become increasingly difficult to secure enough of ever-higher grades of eco-friendly fuel to get cargo from A to B. This means more expensive fuels and more expensive products on western retail shelves. And with inflation running high, too much money, created through such money-printing schemes like "quantitative easing", chase what goods are available, as they become less available because prices for them rise beyond poor people's ability to pay. But Chinese manufactures are geared to downmarket buyers, whose poverty grows, putting them beyond the ability to buy even cheap imports.
Largely unnoticed by diversions to the Cape route, is the fundamental changes that have come to shipping since the 1967 Six Day War. Back then, China's international presence was confined to ping-pong and only later did it graduate to basketball. The first use of containers on the Pacific was the US supplying the Vietnam War. Only in the '70s did Japan, Korea, the Philippines, Hong Kong, Malaysia and Singapore start making containerable goods to sell to the West and Asian economic tigers that have been roaring since.
What has been overlooked in connection with the Houthi rocketry and the revival of the Cape route, are the economies of scale in shipping. Containerships in 1970 were 500 TEU. They had 40-man crews and were confined to the transatlantic trade. Fifty per cent of the retail price of most imported goods was taken up in shipping costs. In general, imports were purchased by the rich. The poor, that is the non-rich, bought locally-made clothing and footwear.
Fifty years later, purchasing practices were reversed. The rich bought locally from skilled craftsman while the poor bought cheap imports from Big Box retailers. The size of biggest containerships went from 500 TEU to 24,000 TEU, Ships' crews shrank from 40 to half that. They could get by with 13-man crews if it were not for regulations to prevent it. And there are plans afoot to have no crews aboard fully automated ships.
It doesn't take a cost accountant to see the savings in the change from the biggest ships available then and now. There is 10 times the revenue and nearly half the cost of crew. Granted, the average transoceanic containership weighs in at 10,000 TEU these days, but the cost savings are still substantial, rendering the Cape route that adds adding 8,000 nautical miles to the voyage an inconvenience rather than a catastrophe.
That notwithstanding, Prof Fuentes's thesis holds that "shipping companies face a costly dilemma in the Red Sea. Houthi attacks mean vessels passing through the Suez Canal risk being hit with ballistic missiles."
The Red Sea route lands companies with higher insurance costs; the second means spending money on extra fuel. Chokepoints like the Suez and Panama canals are vital for global trade as vast quantities of goods are transported through these passages, from raw materials to finished products.
"Companies like Tesla, Michelin and Volvo have all experienced production stoppages due to shortages of components which have been rerouted and delayed in transit through West Africa," said Prof Fuentes.
"Production halts and supply shortages may also contribute to higher prices and inflationary pressure if disruption in the region continues long-term. This could ripple into politics, especially in scenarios like the US presidential election this year," he said.
"Historically, piracy has been one of the main threats to merchant vessels in the region. Compared to the new danger posed by the Houthi movement, the frequency of pirate raids has been observed to go through peaks and troughs, unlike the seemingly random missile strikes against ships with even a subtle connection to Israel, the US or the UK," he said.
Piracy was a threat in the Gulf of Aden 10 years ago, but it is little more than nuisance today. It is almost exclusively afflicts old low and slow tankers and bulkers but not fast-moving containerships.
Prof Fuentes mentions to the current political climate in the west as having an impact on the Red Sea crisis. If the clashes t'wixt right and left in the US, UK, Canada and Australia bring about a less socialist outcome cross-culturally, it may well bring about a more ordered life ashore and afloat as the dominant more forgiving feminine order gives way to a more disciplined approach to life in general. |
