The crisis in the Red Sea has been ongoing for over 3 months

Regular attacks on ships by the Houthis have raised serious concerns within the global community, as this issue pertains not only to international security but also poses challenges to the transportation and logistics industry. Additionally, the crisis has impacted agricultural exports from Ukraine.

The leadership of Global Ocean Link, CEO Pavlo Lynnyk and Commercial Director Volodymyr Huz, shared their views on this problem and the prospects for the development of the situation with Ukrainian Shipping Magazine.

Key Points

The Yemeni Houthis have been attacking commercial vessels in the Red Sea since October 2023. Since then, they have conducted over 27 attacks on civilian ships using combat drones and ballistic missiles.

In November, the Houthis seized the cargo ship Galaxy Leader and took hostages, including Ukrainian sailors. Following this, they also attempted to capture the tanker Central Park in the Gulf of Aden, which was rescued by the US destroyer USS Mason. In December, the United States and nine other countries announced the launch of Operation Prosperity Guardian. The aim of the operation is to address security issues in the southern Red Sea and Gulf of Aden to ensure freedom of navigation for all nations. Currently, the coalition includes over 20 participants, including the United Kingdom, Norway, France, the Netherlands, Italy, Denmark, India, Bahrain, and the Seychelles.

On January 12, the United States and the United Kingdom, with support from Australia, Bahrain, Canada, and the Netherlands, began a series of air and missile strikes against the Houthis in Yemen. This was in response to their attacks on ships in the Red Sea. During this first wave of strikes, over 100 missiles were launched at more than 60 targets in 16 separate locations. Additionally, at the end of January, it was reported that the Houthis had launched a missile strike on a US naval ship in the Gulf of Aden off the coast of Yemen. The target was an auxiliary cargo ship, the expeditionary sea base USS Lewis B. Puller.

Political Escalation and Suspension of Transportation Moratorium

GOL CEO Pavlo Lynnyk notes that the attacks carried out by groups supported by Iran have led to the temporary suspension of maritime transportation and increased the risk of political escalation in the region. “Countries located along the Red Sea face threats to maritime security and trade. These threats can negatively impact not only the local economy but also global trade, especially in the energy supply sector,” says Pavlo Lynnyk.

For example, Qatar is the largest supplier of LNG to Europe after the US. It redirected at least six cargoes around the Cape of Good Hope in Southern Africa instead of the shorter route through the Red Sea and the Suez Canal from January. 15.

In turn, GOL Commercial Director Volodymyr Huz adds that there has been a significant decline in competitiveness as logistics in these regions have become 3-4 times pricier. The cost of shipping a standard 40-foot container from Asia to Northern Europe has risen from less than $1,500 in mid-December to almost $5,500. According to the cargo booking platform Freightos, shipping Asian cargo to the Mediterranean costs even more: nearly $6,800 compared to $2,400 in mid-December.

Therefore, the issue is undoubtedly not of a local nature but poses a challenge to the global security architecture and causes a range of associated economic consequences. It is worth noting that 15% of the world’s maritime trade, including 8% of grain, 12% of oil, and 8% of liquefied natural gas (LNG) shipments, passes along the western coast of Yemen, controlled by Iranian-backed militants. This trade route is crucial as the Suez Canal connects the Red and Mediterranean Seas.

As a result of the crisis in the Red Sea, the world’s four largest shipping companies – MSC, CMA CGM, Maersk, and Hapag-Lloyd – have suspended the passage of ships through this route. According to the IMO, this already involves 20 shipping companies. Meanwhile, the alternative route, which runs between Europe and Asia around Africa via the Cape of Good Hope, adds 14 days to the journey.

Consequences for Ukraine

Experts emphasize that the effects of the crisis in the Red Sea will not spare Ukraine. This assertion is supported by the fact that in January 2024, Ukrainian agro-industrial exports decreased by 20%. The Minister of Agrarian Policy, Mykola Solskyi, stated during a television marathon that the reasons include not only the New Year holidays but also the crisis in the Red Sea. He explained that a portion of Ukrainian agro-exports passed through the Red Sea en route to Asia, China, other countries, and East Africa. Against this backdrop, six business associations in Ukraine have appealed to President Volodymyr Zelenskyy, requesting the National Security and Defense Council (NSDC) to address the difficulties faced by Ukrainian companies in transporting goods through the Suez Canal.

Additionally, there are other factors that, according to the management of GOL, could impact the Ukrainian economy. “Instability in the Red Sea could lead to rising oil prices and increased transportation expenses. This will affect Ukrainian businesses engaged in international trade,” says Pavlo Lynnyk.

Volodymyr Huz also noted that a significant impact on Ukrainian exporters, especially container exporters, is already visible. “The imposed surcharges do not correlate with the global price of agricultural products. Due to this factor, many have halted their activities or minimized them. Importers face the traditional price increase ahead of the Chinese New Year. The escalation of the conflict brings us closer to the unstable year of 2020, during the COVID-19 pandemic, in the context of shipping lines’ pricing policies,” adds Volodymyr.

Currently, over 500 containers have had to change their route. Insurance premiums are skyrocketing, and sailors demand double pay for their work. “In summary, it is worth noting that the situation in the Red Sea has indeed significantly impacted shipping and the global economy. Ukraine has also been affected. As analytical data and trends indicate, despite the armed response to the Houthis from the Western coalition, resolving this issue will not be immediate,” concluded Global Ocean Link.