HAMBURG- Attacks on shipping in the Red Sea region have in past days led to a sharp rise in the number of grain cargoes being diverted around the Cape of Good Hope, rather than using the Suez Canal, grain traders and analysts said on Friday.
Earlier this week, shipping sources had said they expected some grain cargo diversions but that most would continue to risk passing through the Suez Canal, which is the shortest shipping route between Europe and Asia.
But continued attacks on shipping this week by Iran-backed Houthi militia despite US -led air strikes on Houthi positions in Yemen mean more dry bulk carriers transporting grain are avoiding the Red Sea, analysts and grain traders said.
“About 3 million metric tons of about 7 million tons a month that normally goes through Suez has been diverted,” Ishan Bhanu, lead agricultural commodities analyst at data provider and analysts Kpler, said. “So, this week, the number diverting away from the Red Sea has jumped from 20 percent to 45 percent .”
He said on Friday, Kpler had traced traced another 18 vessels diverting carrying in total about 1 million tons of grains.
“One vessel carrying soybeans from the US to China, had travelled all the way to Egypt and decided to turn around before entering the Suez Canal,” he said.
Wheat shipments via the Suez Canal fell by almost 40 percent in the first half of January to 0.5 million metric tons due to attacks in the Red Sea and Gulf of Aden, the World Trade Organization said on Thursday.
“The number of diversions has certainly become more serious in the past couple of days,” a German grain trader said, but, as an active charterer of vessels to ship his company’s grains, added that large numbers of bulk carriers were still sailing via the Red Sea.
Weeks of attacks by Iranian-backed Houthi militants on vessels in the Red Sea have disrupted shipping in the Suez Canal, the fastest sea route between Asia and Europe carrying 12 percent of global container traffic.
For the European economy, already skirting a mild recession as it tries to shake off high inflation, prolonged disruption would be a new risk to its outlook and could derail plans by central banks to start cutting interest rates this year.
Bank of England chief Andrew Bailey concurred, telling a parliamentary hearing it “hasn’t actually had the effect that I sort of feared it might”, while acknowledging the uncertainties remained real.
No impact from the attacks has yet turned up in Europe’s main economic indicators – including December inflation numbers, which ticked up slightly across the region on a mix of largely expected statistical effects, some one-offs and some pressure on prices for services.
German logistics giant DHL said it still had available air freight capacity – not an option for everyone – because the global economy was “not really pumping yet”
This subdued economic picture also makes it harder for companies to pass onto consumers any increases in costs they are encountering, for example by having to re-route around Africa. Many of them have rebuilt margins in the past year and accept they might simply have to suck this one up.
“Our best forecast at the minute is we’re able to absorb the incremental cost that we estimate will come through and still achieve … gross margin improvement,” Poundland owner Pepco Group’s executive chairman Andy Bond told Reuters.
Furniture retailer IKEA even said it would stick to planned price cuts and had the stocks to absorb any supply chain shocks. As long as that remains the case for enough companies, the disruption will not move the dial on consumer price inflation.
Using an IMF estimate of the impact of freight cost rises, Oxford Economics in a Jan. 4 note estimated gains in container transport prices would add 0.6 percentage points to inflation in a year’s time. The ECB is expecting euro zone inflation to fall from 5.4 percent in 2023 to 2.7 percent this year.
