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HomeSUPPLY CHAIN MANAGEMENTDiscussing the Red Sea from a Supply Chain Perspective

Discussing the Red Sea from a Supply Chain Perspective

Discussing the Red Sea from a Supply Chain PerspectiveThe Red Sea, a crucial sea route linking Europe, the Persian Gulf, and East Asia, has been experiencing an increase in attacks by Houthi insurgents in Yemen since mid-November 2023. As a result, the US has formed a maritime coalition to protect shipping in the region. The Eastern shore of the Red Sea includes Saudi Arabia and Yemen, while the Western shore comprises Egypt, Sudan, Eritrea, and Djibouti.

Shipping companies have reacted to the situation by altering their routes. Maersk has stopped all transits through the Red Sea/Gulf of Aden until further notice, and Hapag-Lloyd has extended its rerouting around Africa. CMA CGM has announced rate increases from Asia to North Europe, and carriers are redirecting Asia to US East Coast services via Panama.

The International Hydrographic Organization defines the limits of the Red Sea. It is a vital part of the sea routes between Europe, the Persian Gulf, and East Asia, with heavy shipping traffic. Several government-related bodies police the Red Sea area, including the Port Said Port Authority, Suez Canal Authority and Red Sea Ports Authority of Egypt, Jordan Maritime Authority, Israel Port Authority, Saudi Ports Authority and Sea Ports Corporation of Sudan.

The Eastern shore includes Saudi Arabia and Yemen while the Western shore consists of Egypt, Sudan, Eritrea, and Djibouti. Numerous cities and ports are located on the banks of the Red Sea.

Recent shipping issues have arisen in the Red Sea. Maersk has decided to halt all transits through the Red Sea / Gulf of Aden until further notice. Hapag-Lloyd has extended its rerouting around Africa for another week before reassessing the Red Sea security situation. Some cargo will move to air mode of shipment, and analysts expect air freight rates to rise.

In response to these disruptions, CMA CGM has announced rate increases from Asia to North Europe, escalating from $2000/FFE to $6000/FFE by mid-January. The Federal Maritime Commission in the US is allowing carriers to publish new tariffs with shorter notice. Carriers are redirecting Asia to US East Coast services via Panama instead of Africa. However, issues with the Panama Canal persist and normality is not expected until mid-2024.

The Red Sea is essential for countries that are not directly on its banks, such as those near the Mediterranean, including EU countries and Israel. Recent insurgent activities near the shore are increasing the freight rate of cargo moving through the Red Sea, forcing ships to take different routes such as the Cape of Good Hope.

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