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Red Sea Attacks Hit Shipping

Terrorist attacks on Red Sea vessels have “created a multiple-front storm for global trade” that is delaying goods shipments and could drive up inflation, according to CNBC.

What’s going on: “To avoid strikes by Iran-backed Houthi militants based in Yemen, carriers have already diverted more than $200 billion in trade over the past several weeks away from the crucial Middle East trade route, which, along with the Suez Canal, connects the Mediterranean Sea to the Indian Ocean.”

The details: Freight rates are rising every day, and shippers are adding surcharges for the diversions.

  • “Rates for freight traveling from Asia to northern Europe more than doubled this week to above $4,000 per 40-foot-equivalent unit (container). Asia–Mediterranean prices climbed to $5,175 per container.”
  • “Some carriers have announced rates above $6,000 per 40-foot container for Mediterranean shipments starting mid-month, with surcharges ranging from $500 to $2,700 per container.”

Why it’s important: If the attacks continue, the “transitory” U.S. inflation that recently began to ebb could return, an economist told the news outlet.

  • “In the meantime, about 20% of vessel capacity isn’t being used due to a massive drop in manufacturing orders, according to industry experts. Instead, ocean carriers continue to cut their sailings while tight capacity and longer travel times are fueling rate increases.”
  • Widespread ship rerouting could reduce container shipping capacity by 10% to 15%, according to one shipping firm’s analysis.

Rail opportunity: As ocean shippers route more freight from Asia to the U.S. West Coast (in an effort to avoid going through the Red Sea), railroads and trucking companies on the West Coast will see an increase in demand.

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