New Risk to Inflation: Freight Shipping Rates
It looks like shipping firms avoiding Red Sea as attacks will lead to an increase in freight charges.Despite Houthi attacks since 19 November, more than 2000 tankers continued to sail through the Red Sea in November and December, with only 55 of them changing their route. However, increased risk in the Red Sea caused a surge in shipping insurance rates.
Although a US-led coalition of 10 countries hit Houthi targets, the attacks are not expected to come to an end.
This can be considered the biggest crisis since the container ship Ever Given blocked the Suez Canal for six days two years ago. Recently, deciding to take no further risk, shipping giant Maersk decided to suspend Red Sea traffic. However, travelling via the Cape of Good Hope can delay the trip by up to three weeks, not to mention increasing fuel and operation costs.
Egypt’s Suez Canal revenue, which generates $25-30 million for the country each day with a record-high $9.4 billion last year, is greatly impacted by Red Sea hits. China’s trade too is likely to be affected by the Houthi attacks since China is among the biggest buyers of goods from the Red Sea and Basra. Escalating tensions on the red sea pose billions worth of risks for China, given that 80% of its trade is seaborne.
Red Sea attacks caused 40-foot container prices to double to above $3,000. This means a 122% increase in one month. This is a Red Sea crisis but shipping costs are soaring all around the world. This rise has not yet affected global inflation, but surely we will feel it very soon. Everyone fears that the world might have to go through the same process that it had gone through during the COVID-19 pandemic, in which container prices had gone up to $12,500.
The pandemic did not change the world completely. It did not “reset” the world. It just convinced us to use technology to solve problems. We will soon see certain factors that once considered less important to make themselves more visible, such human resource costs, logistics costs, financing costs, and cyber security costs.
All this turmoil in the world will eventually lead people to find alternative solutions to problems or different methods to cater needs, instead of producing goods and shipping them to remote places. These will include more automation, fewer workers, more tokenization of assets and securities, and structural changes in organisations. In the midst of all these changes,education too must be redesigned according to the needs of the future.
