Red Sea Crisis Intensifies Israeli Trade Challenges and Carbon Footprint, Leading to Higher Costs and Longer Routes

NYN | Reports and analyses

International concern is mounting regarding the ongoing Red Sea crisis, which has become a critical chokepoint for global maritime trade, causing what the United Nations describes as a “shake-up in the shipping industry.”

The United Nations Conference on Trade and Development (UNCTAD) predicts moderate growth in the maritime sector, with global trade volumes expected to rise by 2% in 2024. This growth is largely driven by bulk commodities such as iron ore, coal, and container trade. However, the risk of disruptions remains high due to volatile factors.

Maritime chokepoints have become increasingly susceptible to congestion, climate impacts, and political instability. Reports indicate that the Red Sea crisis, persisting since November 2023, has heightened security risks, prompting major shipping lines to reroute away from this crucial corridor.

This redirection not only adds to transit times but also increases fuel consumption and emissions. According to UNCTAD and BQ’s monitoring, ships now take an extra 10 days when rerouting around the Cape of Good Hope, significantly increasing shipping costs.

The United Nations Conference on Trade and Development has highlighted that the shipping industry is attempting to reduce its carbon footprint, yet it faces the dual challenge of managing rising emissions and escalating costs. Contributing approximately 3% of global greenhouse gas emissions, the shipping industry is now confronted with the reality that these extended routes lead to greater fuel consumption and, consequently, more emissions.

For instance, a container ship traveling from China to Europe via the Red Sea could incur an additional $1 million in fuel costs due to delays. However, taking the longer route around Africa can push this cost up to $1.7 million, further burdened by increased expenses in insurance, wages, and fuel.

Global supply chains, as UNCTAD advises, must become more adaptable, integrating technology and data to anticipate and respond to such disruptions effectively.

Shipping Costs Surge by 30%

Shipping data reviewed by BQ shows that maritime freight costs have surged by 30%, with air freight costs also climbing, placing an additional burden on importers.

Shipping companies have notified clients of a 30% increase in sea freight rates. Part of this hike is expected to pass on to consumers, consequently raising the prices of imported goods.

Israeli shipping company ZIM has informed its clients that starting November 1, additional fees will be applied: $1,000 for a 20-foot container, $1,500 for a 40-foot container, and $1,600 for a 60-foot container on routes from the Far East to Israel.

These additional fees are in addition to the current rates, which are $3,348 for a 20-foot container and $4,884 for a 40-foot container.

International shipping companies have also announced similar rate increases. For instance, Swiss-based MSC raised the rate of a 40-foot container, the most common size, from $3,000 to $4,700.

Reports confirm that these price hikes are adding further pressure on Israeli importers and exporters, already strained by recent attacks on cargo ships by Yemen’s government forces en route from the East.

According to a statement by an Israeli importer, quoted by NYN on the Israeli site Ynet, rising costs amid high demand are enabling shipping companies to profit from the situation without significant losses.

The situation for importers and exporters who rely on air freight is equally challenging. Foreign airlines rarely fly to Israel, limiting the volume of cargo transported in aircraft cargo holds to and from Israel.

While Israel’s El Al airline reported a 107% increase in revenue from cargo transport, this boost has not compensated for Israel’s air import needs, given that about one-third of Israeli imports arrive by air.

According to data from the Israeli Passenger Authority, published in September, there was a 48% decline in cargo flights on passenger planes. While dedicated cargo flights increased, the overall import and export volume by air dropped by 2.5%.