Arab News Japan

TOKYO: The reduction in shipping capacity along with higher fuel and insurance costs has led to a 200 percent rise in the cost of shipping containers on routes that would typically pass through the Red Sea, according to economic forecasting group Oxford Economics (OE).

OE says the disruption to shipping caused by maritime attacks on commercial vessels in the Red Sea is assumed to be “relatively short-lived” with the recent increase in sea freight prices likely to reverse. The impact on inflation forecasts will be negligible, it says.

However, it said, “If the Red Sea were to remain closed to shipping for several months and shipping freight costs stayed around twice the level of mid-December, this could add 0.7ppts to annual CPI inflation rates by the end of 2024.”

“The recent wave of attacks on ships sailing through the Red Sea – through which around 30 percent of all container shipping traffic passes – has major ramifications for the shipping industry. Some shipping companies have already announced suspensions of sailing though the region, diverting ships instead around the Cape of Good Hope. It’s been widely reported that the extra shipping times caused by an effective closure of the Red Sea could reduce global shipping capacity by 20 percent.”

OE says the impact on consumer prices isn’t clear yet, with the key question being how quickly shipping firms will be prepared to allow their fleets to return to sailing through the Red Sea. 

OE says the importance of the Red Sea shipping route increases the likelihood of a relatively quick resolution to the problem. It’s been reported that US President Biden is contemplating direct strikes on the Houthi rebels believed responsible. A more extended period of disruption lasting months would have more significant implications for inflation and a sustained closure of the Red Sea would slow the speed at which inflation returns to normal.