Ami Daniel, founding partner and CEO of maritime risk information company Windward, does not recall an event short of all-out war that has caused as much disruption to navigation and world trade, mainly affecting ships of US allies, as the current situation in the Red Sea.
"What has been happening in the past few weeks in the Red Sea is a black swan," he told "Globes". Windward analyses world shipping movements in real time and provides intelligence to navies and coastguards in Western countries. It also assists shipping lines, financing companies, and oil and gas companies, to assess risks to ships and sea lanes.
Daniel himself knows a thing or two about naval warfare. He saw up close the Chinese C-802 missiles that the Houthi rebels in Yemen are using when he was an officer on the deck of the INS Hanit in the Second Lebanon War.
The Houthis are believed to have used that same missile to attack cargo vessels in the Red Sea in more than 100 separate incidents. In addition, the Iranians attacked the Chem Pluto, owned by Idan Ofer, 200 kilometers west of the Indian coast, and there have been two attacks by Somali pirates.
Mission impossible
Daniel says that Operation Prosperity Guardian, which is meant to provide a response to the attacks, is flagging. "The US is clearly leading it, and Britain is part of it, but there are countries like France and Spain that joined and left, and another ten countries that are not identifying themselves. This coalition is weakly organized, and the forces are operating independently. The French, for example, will probably mainly protect the ships of French company CMA CGM. The Indians, who have not joined the operation, deployed destroyers following the Iranian attack, and these provide a solution near Somalia, but we don’t have a situation in which a US admiral gives an order and everyone rushes to carry it out."
The expansion of the hostile acts against Western ships to the Indian Ocean and to larger parts of the Arabian Sea has made the naval coalition’s task almost impossible.
"To protect a cargo or container vessel, a warship has to be not more than 2,000 yards away from it. If in the threatened area, from northwest Yemen to southeast Aden, there are 260 ships, and you have to stand a mile in each direction from them, you need a lot of warships just to provide protection, and that’s mission impossible."
This partly stems from the fear countries have of being perceived as siding with Israel.
"That’s right. We have seen captains explicitly request that US ships should not escort them, unless it’s a matter of several ships from the coalition forces, and with UN support, which is something difficult very to obtain. They are basically saying ‘I’d rather not be protected than have the Americans protecting me.’ This is a new trend that we haven’t seen before. We have already seen several ships broadcasting ‘We have no connection to Israel’ in their position reports, in response to a declaration by the Houthis that they will spare any ship that does so, and will attack any ship sailing to Israel, carrying Israeli cargo, or trading with Israel. So far, we have identified Chinese, Russian, and Greek ships sending out this message."
So the Chinese and the Russians have bought themselves insurance against attacks?
"COSCO declared that they would no longer ship goods to Israel. Taiwanese line Evergreen made a similar announcement, saying that it would temporarily cease accepting Israeli cargo, and then removed it from its website. We also know that, unlike Western shipping lines such as Maersk and Hapag Lloyd, the Chinese, Russian and Taiwanese ships are sailing in the Red Sea as usual. I don’t know whether they have agreements with the Houthis, but there are ships that declare that they are Chinese, or that they have no connection to Israel."
What consequences for world trade do you see in your systems?
"Significant price rises in shipping for goods and products from China and other Asian countries - chiefly containers of furniture and toys, and car transporters. 30% of the world’s containers went via the Red Sea, and now, with low stocks to start with because of the economic crisis of the past few years, war premiums, and delays caused by sailing around Africa, container prices have risen.
"There’s a rise of between fourfold and eightfold in shipping prices for twenty-foot and forty-foot containers, and there are already indications that shipping an MSC container will cost $10,000 next month, prices we last heard of during the Covid pandemic. Not long ago, we were in the region of $1,700.
"As far as cars are concerned, after the attack on the Galaxy Leader, we see a tripling of the number of transporters of cars of Chinese, Japanese, and Korean brands rounding Africa in December in comparison with the previous month. All that will add $1,000-2,000 to the price of a car in the near future. The confrontation in the Red Sea will have considerable inflationary consequences."
A risk level like Ukraine
To what extent is Israel affected differently from other countries in the region and in Europe?
"Israel faces a danger of silent, creeping sanctions. It is not a big consumer, or importer and exporter, of goods, while sailing to it has become riskier. More and more crew on a growing number of ships are asking their managers that they should not sail in the Red Sea and not go to Israel. The shipping lines are backing this trend, such as COSCO, which has announced that it will not anchor in Israel, and other companies that, as far as risk management is concerned, regard sailing to Israel as carrying the same risk as sailing to Ukraine.
"I should stress that we’re not talking of the danger of a blockade of Israel, because we have sufficient resources and companies around the world that will help with supply, but we’ll pay a price for it. Jewish and Israeli shipowners will continue to do business here, and the rest will raise their tariffs, or will be less available. Instead of six supply lines, there are liable to be two or three here. The rest will prefer not to take the risk and not to manage it, and every product you want to bring to Israel will become dearer."
There are government compensation mechanisms if shipping to Israel is impacted.
"True, but foreign shipping companies simply prefer not to manage the risk involved in sailing to Israel, so they raise the risk premium, or unload the merchandise in Piraeus, for example, and a company with an Israeli connection ships it to Israel. These are silent sanctions that government compensation mechanisms don’t solve."
What then can the government do?
"Let’s start with saying that they should appoint someone responsible for dealing with the problem. Is that the Ministry of Economy and Industry? The Ministry of Labor? The Ministry of Defense? Perhaps the Ministry of Foreign Affairs? After that, it’s possible to think about solutions: to approach the major shipping lines, to be in touch with them and to build a package of incentives for them, or to give tax breaks to importers. In a scenario of prolonged harm to trade, there has to be someone who leads and who is responsible on behalf of the state."
Published by Globes, Israel business news - en.globes.co.il - on January 10, 2024.
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