Recent attacks on ships launched by Yemen’s Houthi militia group have threatened one of the world’s most crucial trade routes — the Suez Canal. As several shipping companies divert their vessels, About That producer Lauren Bird explains the economic ramifications of it all.
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>> Lauren: WHAT IF THE WORLD’S MOST CRUCIAL TRADE ROUTE IS UNDER THREAT FROM REBELS. >> Lauren: MILITANTS THAT SUPPORT HAMAS, WHO HAVE BEEN ATTACKING SHIPS PASSING THROUGH THE RED SEA. >> THE NORWEGIAN OIL TANKER WAS HIT BY ANTI-TANK MISSILES AND CAUGHT FIRE.
MILITARY LEADERS SAY THEY’RE ACTING IN SOLIDARITY WITH PALESTINIANS AND THAT ALL OF THE TARGETS HAVE SOME CONNECTION TO ISRAEL, BUT THAT’S FAR FROM CLEAR. >> Lauren: EXPERTS ARE WARNING THAT IF THIS CONTINUES, IT COULD HAVE A MAJOR IMPACT ON THE COST OF PRETTY MUCH EVERYTHING.
THE REASON, SEVEN OF THE TEN BIGGEST COMMERCIAL SHIPPING COMPANIES DECIDED THE RISK ISN’T WORTH IT. THOSE SEVEN COMPANIES MAKE UP TWO-THIRDS OF THE GLOBAL SHIPPING MARKET. IN MANY CASES, INSTEAD OF GOING THEIR NORMAL ROUTE, THEY’RE MAKING THE EXTREMELY COSTLY
DECISION OF GOING ALL THE WAY AROUND THE ENTIRE CONTINENT OF AFRICA, JUST TO AVOID THE TROUBLE. THE SUEZ CANAL IS THE QUICKEST ROUTE BETWEEN ASIA AND EUROPE, AND IT’S AN IMPORTANT TO EUROPE AND AMERICA AS WELL. NOT FAR FROM YEMEN, WERE MOST OF
THESE ATTACKS HAVE TAKEN PLACE. >> IT SAVES YOU 25% OF THE TIME ON THE JOURNEY BETWEEN ASIA AND EUROPE. IT’S A VITAL TRADE LINK. >> Lauren: HERE’S HOW VITAL IT IS. 12% OF ALL GLOBAL TRADE PASSES THROUGH THIS CANAL, INCLUDING
30% OF THE WORLD’S CONTAINER SHIPMENT. WE’RE TALKING ABOUT A TRILLION U.S. DOLLARS WORTH OF GOODS EVERY SINGLE YEAR, FROM CLOTHING, TO ELECTRONICS, TO CARS. >> I MEAN YOU SHOULD GO TO A STORE AND LOOK AROUND. ANYTHING ON THE SHELF IN THE
STORE WOULD HAVE COME ON A CONTAINER SHIP. I’M LOOKING AROUND THE ROOM RIGHT NOW. THE BOOKS, MICROPHONES, EVERYTHING. IT’S SHIP IN A CONTAINER SHIP. >> Lauren: IT’S ALSO A MAJOR ROUTE FOR OIL, ABOUT 10% OF GLOBAL OIL SHIPMENTS FLOW
THROUGH THIS CANAL, JUST TO GIVE YOU AN IDEA. IN THE FIRST HALF OF 2023, THAT WAS ABOUT 9 MILLION BARREL AS DAY. EUROPE IS MOST AFFECTED BY THE OIL DISRUPTIONS BECAUSE A SIGNIFICANT AMOUNT OF THEIR IMPORTS ARRIVE VIA SUEZ CANAL,
EVEN MORE SINCE THEY STOPPED TAKING OIL FROM RUSSIA. THERE AREN’T MANY GOOD ALTERNATIVES. YOU CAN’T JUST SEND ALL THESE GOODS BY AIR. YOU CONSIDER THE MASSIVE CARRYING CAPACITY OF THESE SHIPS. FOR EXAMPLE, THE WORLD’S LARGEST CARGO PLANE IS 84 METRES, OR
ABOUT 275 FEET LONG. IT CAN CARRY A FEW HUNDRED THOUSAND POUNDS OF CARGO, BUT COMPARE THAT TO THE LARGEST CONTAINER SHIP. THERE IS SOMEWHERE BETWEEN 275 OR 400 METRES, OR 900 TO 1,300 FEET LONG AND CAN CARRY HUNDREDS OF POUNDS. ANY ALTERNATIVE IS REALLY
EXPENSIVE. SOME OF THE BIGGEST SHIPPING COMPANIES THAT HAVE PULLED OUT OF THE AREA ARE DIVERTING THEIR SHIPS AROUND THE CAPE OF GOOD HOPE ON THE SOUTHERN TIP OF AFRICA, SAILING FROM ASIA TO EUROPE, VIA THE CAPE OF GOOD HOPE IS A SIGNIFICANT DIVERSION.
THIS ROUTE ADDS MORE THAN 5,000 KILOMETRES TO A JOURNEY FROM SINGAPORE. >> IF SOMETHING TAKES 25% LONGER, THAT’S 25% LESS SUPPLY OF CAPACITY FOR THE SHIPPING NETWORK. THAT MEANS WHEN YOU REDUCE SUPPLY, PRICES CAN GO WAY UP. >> Lauren: YOU CAN IMAGINE AN
EXTRA 5,000 KILOMETRES, THAT’S A LOT OF EXTRA FUEL. HERE’S THE THING. THE COST TO PASS THROUGH THE CANAL HAS BEEN GOING UP STEADILY FOR MONTHS SINCE THE ISRAEL-HAMAS WAR STARTED. SHIPS HAVE TO NOTIFY THEIR INSURERS WHEN THEY’RE SAILING THROUGH A HIGH RISK AREA.
>> THE SHIPS HAVE TO BE INSURED IF YOU’RE TRANSITING ONE OF THESE AREAS, YOU MAY HAVE TO PAY AN ADDITIONAL PREMIUM, DEPENDING ON WHO YOU ARE INSURED WITH. >> Lauren: JUST THIS WEEK, A GROUP OF PROMINENT INSURERS WIDENED THE AREA IN THE RED SEA.
MORE SHIPS WILL HAVE TO PAY THOSE PREMIUMS. SHIPPING COMPANIES HAVE A TOUGH CHOICE TO MAKE. THEY EITHER FACE THE RISK OF TRAVELLING THROUGH THE RED SEA AND THE INCREASED INSURANCE COSTS THAT COME WITH IT OR THEY DIVERT THEIR VESSELS TOWARDS
LONGER ROUTES, WHICH CREATES A DOMINO EFFECT, MESSING UP THEIR ITINERARY, CLOGGING UP THE CHAIN, ALL THE WAY DOWN. EITHER WAY, THEIR COSTS GO UP. >> WE’RE GOING TO SEE COSTS GO UP 2X TO 3X FOR THE PRICE OF SHIPPING THINGS.
>> Lauren: IF THE COST OF SHIPPING GOES UP, SO DOES THE COST OF EVERYTHING ON THOSE SHIPS. THIS ISN’T THE FIRST TIME PASSING THROUGH THE SUEZ CANAL HAS BEEN AN ISSUE. YOU PROBABLY REMEMBER THE DEBACLE A COUPLE OF YEARS AGO.
>> A GIANT CONTAINER SHIP, BLOCKING ONE OF THE WORLD’S MOST IMPORTANT SHIPPING LANES. >> Lauren: REPORTS ESTIMATE THAT INCIDENT HELD UP $60 BILLION WORTH OF TRADE. NOW, AT THE TIME ALL TRAVEL THROUGH THE CANAL WAS BLOCKED. NO ONE COULD GET THROUGH, BUT IT
ONLY LASTED SIX DAYS. THIS CONFLICT, SO FAR, HAS NO END IN SIGHT. >> I MEAN WE’RE TALKING ABOUT TENS OF BILLIONS OF DOLLARS WORTH OF COST, AND THAT’S JUST IN THE SHIPPING COMPANIES. WHEN YOU MULTIPLY THAT FORWARD BECAUSE THE PRICES OF EVERYTHING
IS INCREASING DOWNSTREAM. >> Lauren: THE IMPACT ON THE PRICE OF GOODS CAN TAKE LONGER TO TRICKLE DOWN, THE IMPACT ON OIL IS BEING FELT. >> B.P. IS THE LATEST TO PAUSE SENDING SHIPS THROUGH THE RED SEA, CAUSING BOTH OIL AND
EUROPEAN NATURAL GAS PRICES TO RISE. >> Lauren: ALL OF THIS COMES AT A TIME WHEN GOVERNMENTS AROUND THE WORLD ARE TRYING TO GET A HOLD OF INFLATION. MANY WESTERN ECONOMIES LIKE CANADA AND MUCH OF EUROPE ARE INCREASINGLY WORRIED ABOUT FALLING INTO A RECESSION.
>> THE TIING COULDN’T BE WORSE. WE’RE TRYING TO SEE ECONOMIES RECOVER, RIGHT? WE HAVE GONE THROUGH THIS PERIOD OF INFLATION, WE HAVE GONE THROUGH THIS PERIOD OF RISING INTEREST RATES AROUND THE WORLD, AND CANADA HAS TEETERING ON THE EDGE OF THE RECESSION FOR A
WHILE NOW, YET YOU HAVE SOMETHING LIKE THIS THAT CAN COME ALONG AND THROW THINGS OUT OF KILTER. >> Lauren: SUPPLY CHAIN ISSUES WERE A REASON THAT INFLATION SPIKE IN THE FIRST PLACE. >> THERE IS PLENTY OF EAT AND DRINK ON MOST SHELVES OF THE
GROCERY STORES, BUT STILL NO TOILET IT DOESN’T GET PEOPLE ED TO SAIL A SHIP THROUGH THE REGION IF THERE ARE MISSILES SENT BACK AND FORTH. I COULD SEE THIS LASTING QUITE SOME TIME. >> Lauren: THEY HAVE NO PLANS TO BACK DOWN.
ONE SENIOR OFFICIAL WRITING ON X, EVEN IF AMERICA SUCCEEDS IN MOBILIZING THE ENTIRE WORLD, OUR MILITARY OPERATIONS WILL NOT STOP, NO MATTER THE SACRIFICES IT COSTS US. THE LONGER THIS GOES ON, THE MORE PEOPLE A FEEL IT. [♪♪♪]