The prolonged effects of the disruption to shipping in the Red Sea.

Over 80% of global trade is carried out by sea, and as the current state of affairs in the Red Sea demonstrates, interruptions to shipping routes can have far-reaching consequences.

Policymakers and market observers have focused on the immediate effects of longer delivery times and higher fuel prices, but these are only the beginning. Businesses will encounter difficulties with rising insurance premiums, declining ship security, and broader environmental, social, and governance (ESG) effects as the upheaval persists.

Additionally, the Red Sea situation offers a glimpse of geopolitical risk in the future. As one of the primary commerce routes connecting Asia, the Middle East, and Europe, the Red Sea is estimated to account for 10% of global trade volume.

This accounts for 20% of all shipping containers, 10% of oil carried by water, and 8% of LNG. But the significance of the Red Sea is not unique: There are strategic chokepoints for marine traffic everywhere in the world, from naturally occurring straits and funnels to canals. Actors will start to think about their capacity to pull out something similar when they see the effects of Houthi threats and attacks.

Of particular concern would be the potential for a global economic crisis if these methods were to be mimicked on other high-volume routes, in particular the South China Sea.

Effects of a one-week to one-month disruption

One of the most serious challenges in the medium future will be ships simply being in the wrong place. To fulfill just-in-time methods, supply networks have developed. This establishes a delicate equilibrium between each component of the supply chain, particularly between containers and ships.

Ports have a limited number of berths, many of which are size restriction, as well as physical space. Berths are reserved months in advance to ensure that necessary port-side support for offloading, reloading, and refueling is available. Ground transport of containers and other commodities is coordinated around these berth reservations.

As ships divert or take alternate routes, the delays will have an impact on the ports.

As ships reroute or take alternative routes, the delays create a knock-on effect at the ports. When ships do not arrive at their berths on time, containers and goods fill the ports waiting for onward shipment. By rerouting or anchoring vessels, not only are supply chains slowed, but availability of transport options from ports is disrupted. Rerouted ships can overwhelm alternative ports, leading to back-ups at berths and clogged passage in/out of the ports.

As during the covid pandemic, containers quickly will pile up in ports due to delays in ship arrival. This is exacerbated as vessels are repeatedly rerouted or ordered to anchor in an attempt to wait out the risk.

Effects on Insurance

Vessels "going dark," or turning off transponders linked to tracking systems, have long been a big issue. This is done to allow for a wide range of illegal conduct, from escaping punishment to skirting IMO rules or contractual constraints. Because of its central location to countries subject to international trade restrictions, the Red Sea has long been a center for this activity. Insurance premiums for vessels passing through the area reflect this. However, premiums are likely to rise as ships use the method to try to avoid strikes from Houthi forces.

When a ship turns dark, all nearby parties—friends and adversaries—cannot see it. In order to avoid being targeted, ships in the Red Sea are increasingly employing this tactic. Though they evade identification by hostile troops, they also increase the hazard of shipping routes by hiding their position, activities, and information from all parties.

Other vessels use transponders, especially in crowded locations, to analyze traffic, identify other ships in the area, and select safe routes. It would be likened to traveling on a congested highway in the dark without headlights, especially in a location like the Red Sea that is populated with "dark" vessels.

The likelihood of a significant mishap involving large vessels rises significantly in the absence of tracker information. That additional danger will increase High levels of instability in the region and the little state power available in the event of a crisis further complicate this.

Source: The long shadow of the Red Sea shipping disruption by  Alex Mills -  https://www.atlanticcouncil.org/blogs/econographics/the-long-shadow-of-the-red-sea-shipping-disruption/