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As we await the European Central Bank (ECB) meeting later today, another item of news which is not garnering as much attention as it previously may have experienced is the events in the Red Sea. Today an escalation of attacks on marine vessels in the Red Sea is causing widespread trade disruption forcing the world’s biggest vessel owners to take alternative longer routes. This is a meaningful escalation as approximately 20% of global container shipments flow through the Red Sea and Suez Canal. Hence it can be considered a vital area or gateway for facilitating global trade.
One may remember how, at the peak
of Covid-19, supply chain blockages led to record spikes in shipping costs which
ultimately fed through to the unparalleled record goods inflation of 2021 and
2022. Today, the events in the Red Sea are causing delays of up to two weeks
for some container ships, with customers facing delayed delivery of goods and a
greater risk of higher transportation costs. The routes experiencing the
highest rise in prices is the freight rates from Europe to Asia.
Before getting too concerned
however about a widespread return of goods blockages, it may be useful to
review our latest Chart of the week. This graph charts the price journey
of freight rates outside of Shanghai. Whilst rates have risen quite
meaningfully from the 2023 lows, they remain significantly below the highs
experienced during the peak stresses of 2021. In addition to this, the Baltic Dry
Index, which is not show here but is a globally watched indicator, remains on a
downward trajectory since December.