Houthi rebels are continuing to disrupt trade in the Red Sea, causing ships to divert from their planned path through the Suez Canal. With no signs of improvement with in the conflict, impacts on world trade may be felt through consumer's wallets.
Matthew Muenster, Breakthrough Chief Economist, joins Yahoo Finance to discuss the ongoing situation in the Red Sea and the impact of the conflict on trade.
Muenster comments on the impacts: "The largest pain points right now seem to be hitting those major corporations of container shipping, of real prominent brands, and tanker shipping industry that have chosen to move most, if not all, of their freight around the canal, that are rerouting around the Cape of Good Hope and ultimately choosing to take this destination to keep their crews safe, to keep their cargo safe. Ultimately that has a profound impact. It also has an impact on the cargo owners whose freight are now moving around the Cape of Good Hope. This is a massive transportation disruption. It does matter substantially to transit times. It's adding 10 to 12 days in some instances. It is coming at an increased cost."
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Editor's note: This article was written by Nicholas Jacobino
Video Transcript
[AUDIO LOGO]
- Well, Yemen's Houthis claiming credit now for the recent attack on a US cargo ship, the Star Iris. That ship was bound for Iran and is just the latest attack disrupting trade in the Red Sea. Major corporations like Maersk warning there have been no signs of improvements and will continue to reroute their shipments from the Suez Canal.
Let's bring in Matt Muenster, he's Breakthrough chief economist. Matt, good to talk to you today. Give me a sense of the lay of the land right now in the Red Sea. I mean, there have been some reports that suggest that the attacks have started to scale back since the US and the UK went on the offensive in response to some of those attacks we saw several months ago. How do things look?
MATTHEW MUENSTER: Thank you. I think you summed it up really well. There's not a sense of great improvement in the Red Sea right now.
It will take an extended period of time of improvement for there to be confidence among major corporations shipping, moving their freight that would normally pursue with their freight through the Red Sea and out through the Suez Canal or vice versa to reroute and change their services, to bring them back if they are rerouting from the Cape of Good Hope to return to that preferred method of transit. It's going to take some time.
- When you consider the importance of the Suez Canal in global trade and the disruptions we're seeing right now, where are the biggest pain points being felt?
MATTHEW MUENSTER: Largest pain points right now seem to be hitting those major corporations of container shipping, of real prominent brands in tanker shipping industry that have chosen to move most, if not all, of their freight around the canal. They are rerouting around the Cape of Good Hope and ultimately choosing to take this destination to keep their crews safe, to keep their cargo safe. Ultimately, that's a profound impact.
Also has an impact on the cargo owners whose freight are now moving around the Cape of Good Hope. This is a massive transportation disruption. It does matter substantially to transit times. It's adding 10 to 12 days in some instances. It is coming at an increased cost. There are surcharges that are being put into place to accommodate for this conflict disruption. It's an added cost that cargo owners weren't accounting for at the beginning of this year. And ultimately, it impacts both those carrying the freight as well those whose freight is being carried now around the Cape of Good Hope.