Houthi rebels: Will EAC pay for vessel attacks in Red Sea

Major shipping lines among them Mediterranean Shipping Company (MSC) and Maersk have been avoiding the Red Sea and the Suez Canal route.
This move follows attacks by the Iran-backed Houthi rebels in Yemen, who have been targeting ships travelling to Israel.
The Houthis have declared their support for Hamas in the ongoing war Israel war in Gaza that erupted following October 7 Hamas attacks.

The East African region remains exposed to high freight costs even as shipping lines indicate they are resuming voyages through the Red Sea after a hitch in December, caused by attacks by Houthi rebels.

Major shipping lines, including the world’s leading container carrier, the Mediterranean Shipping Company (MSC), and the second-placed Maersk, have been avoiding the Red Sea and the use of the Suez Canal.

This decision came after persistent attacks by the Iran-backed Houthi rebels in Yemen, who have been targeting ships traveling towards Israel.

The Houthis have declared their support for Hamas, a Palestinian political and military organization governing the Gaza Strip in the Palestinian territories, in the ongoing war. Israel launched an attack on Gaza following the October 7 Hamas attacks that left 1,200 people dead and about 240 people taken hostage.

Houthi rebels posing risk to lives and safety of shipping lines workers

On December 15, 2023, the container ship MSC PALATIUM III was attacked at approximately 09:37 UTC while transiting the Red Sea under sub-charter to Messina Line, as reported by MSC.

“The vessel suffered limited fire damage and has been taken out of service,” reads a statement by the shipping line.

Due to the incident and to protect the lives and safety of seafarers, MSC announced that its ships would not transit the Suez Canal, both Eastbound and Westbound, until the Red Sea passage is deemed safe.

“Some services will be rerouted to go via the Cape of Good Hope instead,” noted MSC. The disruption impacted the sailing schedules of several vessels booked for Suez transit.

Maersk also halted all voyages through the Red Sea after repeated Houthi attacks and warnings. Their vessel, Maersk Gibraltar, was targeted by a missile while traveling from Salalah, Oman, to Jeddah, Saudi Arabia.

Salalah, a key transshipment hub serving Kenya, Dar es Salaam, and other small ports on the Indian Ocean coast, was affected by this development.

Other companies taking a similar stance include the French company CMA CGM and the German transport company Hapag-Lloyd, among others. The Red Sea is one of the world’s most important routes for oil and fuel shipments.

Avoiding the Suez Canal, a crucial route for voyages to Mombasa and the East African coastline, results in a longer route and increased time for ships to reach the region’s ports, leading to higher freight charges.

The 193km-long canal connecting the Mediterranean to the Red Sea provides the shortest sea link between Asia and Europe, and a quicker route to East Africa compared to circumnavigating West Africa (Atlantic) or traveling to South Africa before reaching the East.

The Houthi rebels have intensified their attacks using drones and rockets against foreign-owned vessels.

Approximately 30 percent of vessels sailing in international waters utilize the Suez Canal. Last month, the Shippers Council of Eastern Africa (SCEA) warned that the disruption could have a significant impact.

“It would pose a major challenge as vessels will be forced to reroute through the West African maritime route, while others will call at Djibouti to avoid going through Suez,” the Council stated. “Freight and time increases may occur.”

Security situation in Red Sea could see prices soar

The developments in the Red Sea could lead to the East African region experiencing high freight costs, similar to those in 2021 when they increased by up to 30 percent after a week-long blockage of the Suez Canal.

The Suez Canal became impassable between March 23–29 when the giant cargo vessel Ever Given, operated by the global shipping firm Evergreen, wedged across the canal after being blown off course by high winds. This incident stranded at least 450 ships, blocking a vital waterway that facilitates about 12 percent of global trade.

During the blockage and exacerbated by a vessel shortage amid the Covid-19 pandemic, the cost of shipping a 40ft container from most ports to Mombasa surged from an average of $1,400 to between $3,600 and $3,700, leading to increased costs of goods.

Local manufacturers faced challenges with delays in the shipment of raw materials and finished goods, impacting production. The Kenya Association of Manufacturers (KAM) reported an average delay of one to two weeks, especially for shipping lines using the Suez Canal.

The delays affected shipping lines from Europe and Asia, impacting Kenyan imports in terms of vessel availability, transshipments, and general cost adjustments, according to KAM.

Last month, an additional 40 percent longer route caused significant upward pressure on operating costs. The Container Price Sentiment Index by Container xChange, a technology firm in container trading and leasing, indicates that the recent developments have led to a rise in charges, ultimately pushing up freight costs.

China, Kenya’s primary import source, has seen the highest prices on container leasing, reaching a high of $1,750. In Europe, costs are averaging $1,340, up from $1,200 to $1,393 in August 2023.

Christian Roeloffs, co-founder & CEO of Container xChange, noted that events in vital maritime passages like the Red Sea, Suez Canal, and Panama Canal have prompted swift responses from major shipping companies, impacting the container shipping sector.

Container xChange had reported potential disruptions and implications on the Suez Canal in October last year, following the start of the Israel–Hamas–Palestine conflict.

The shares of shipping lines have risen in anticipation of a post-Covid disruption revival, depending on how navies address the situation. Yoni Essakov, from the Israeli Chamber of Shipping’s executive committee, mentioned that if voyages are extended, products with a shelf life of two to three months may not be worth importing from the Far East.

Importers may need to increase stock due to uncertainty, paying more, while others may lose out on markets due to non-competitive time-to-market.

US led security plan to neutralize Houthi rebels

There is, however, hope as the US moves to address insecurities under “Operation Prosperity Guardian” to contain Houthi threats and allow vessels to sail safely. Already, US guided-missile destroyers have shot down over 15 drones in the Red Sea.

On Sunday, the US Navy said it had destroyed three Houthi “small boats” whose crew attempted to board a container ship in the Red Sea.

Four vessels from Houthi-controlled areas in Yemen fired upon the Maersk Hangzhou and got within meters of the ship, the US military said. Helicopters from nearby US warships responded to a distress call and, after being fired upon, sunk three boats “in self-defense.”

At the moment, MSC and Maersk have a market share of 17 per cent in container shipping — ahead of CMA CGM, COSCO, and Hapag-Lloyd, according to Alphaliner.

With the US assuring security, major shipping companies are resuming routes through the Red Sea, though others are continuing to reroute their vessels amid continued attacks.

Maersk and France’s CMA CGM announced the resumption of activity through the Suez Canal last week, while others, including Germany’s Hapag Lloyd, remained hesitant.

The Kenya Ports Authority (KPA), however, has allayed fears that the Port of Mombasa will be greatly affected by the happenings in the Red Sea. KPA Managing Director Captain William Ruto said there is nothing to fear.

“I want to tell you that in this port, we have not been affected by the attacks, and I also want to thank the shipping lines that are operating in the Port of Mombasa because they have given us confidence and assured us that their traffic will continue growing,” added Ruto.