Red Sea price shock looms

Traders and consumers should brace for the lethal effects on prices of the shutdown of the Red Sea due to repeated attacks by the Houthi terror group on commercial vessels passing through the waterway, comprising some 15 percent of global trade.

Even as prices of commodities are stabilizing, the backlash of the higher shipment costs would result in higher costs of imported products, mainly fuel, according to trade experts.

The Philippine Economic Zone Authority, or PEZA, and the premier trade group Philippine Exporters Confederation, or Philexport, concede that the longer route that ships would need to take to avoid the Houthis would affect costs, primarily of grains, liquid natural gas, and oil.

Consumers face higher commodity prices based on some shipping companies’ estimates that the trouble on the Red Sea will increase shipping costs by 15 percent.

On Friday, PEZA Director General Tereso Panga said that aside from higher freight costs, the Middle East conflict is expected to affect the movement of goods across the sea, posing risks to the global supply chain which just recently recovered from the pandemic. 

Panga said the Philippines is not feeling it yet but “we have to brace for its impact. We are coordinating with our affected locators to check with their carriers and principals for alternative routes and suppliers as part of the strategy to de-risk the global supply chain with the ongoing Red Sea crisis.”

“As an alternative, vessels are doing a detour via the Cape of Good Hope in Africa but this is more expensive for shipments. The most efficient and commonly used route between Europe and Asia is the Suez Canal, which connects the Mediterranean Sea to the Red Sea,” Panga said.

He noted that roughly one-third of global container ships take the Suez Canal route and re-directing ships around the southern tip of Africa is expected to add up to $1 million in fuel costs for the trip between Asia and Northern Europe.

According to a report by BMI Research, a Fitch Solutions unit, the Red Sea conflict can cause delays of from six to 15 days with the rerouting of vessels.

Philippine Ports Authority general manager Jay Daniel Santiago recently announced that port fees would not be increased, but he expects  shipping lines to raise freight charges due to the crisis in the Red Sea.

Do not take advantage

“At the moment, PEZA is collaborating with affected registered business enterprises, or RBEs, sourcing and importing goods from the EU on any feedback or complaints on delayed or canceled shipments and increased shipping costs because of the Red Sea crisis. We can expect delays, particularly of our ecozone shipments going to and from Europe, particularly those countries located in the Mediterranean region given the port congestion with the longer dwell time for containerized cargoes,” Panga said.

PhilExport president Sergio Ortiz Luis Jr. asked shipping lines not to take advantage of the situation, since not all shipping lines traverse the troubled route.

“A few shipping lines from Asia use the Red Sea route, so there might be those who will take advantage (and jack up prices). Even our members can’t do anything if the increase in rates is justified. But the government should identify those shipping lines with higher shipping costs; there should be some rules on that,” he said.

PEZA’s Panga said they are currently checking which shipping lines are affected by the Red Sea crisis.

About 10 percent of the world’s trade  passes through the Red Sea, including some shipping lines that operate in the Philippines.

Seafarer safety comes first

The International Maritime Organization, or IMO, in an email to DAILY TRIBUNE, said seafarer safety is paramount in the context of the Red Sea and the attacks on international shipping.

During a meeting with shipping industry representatives last 18 January at the organization’s headquarters in London, IMO Secretary General Arsenio Dominguez reiterated that seafarers are innocent victims in the volatile Red Sea situation.

“Secondly, freedom of navigation must be upheld to guarantee global trade and the flow of goods by sea. Further, there must be caution and restraint to avoid further escalation of the situation in the Red Sea and the broader area,” said Dominguez, referencing UN Security Council Resolution 2722 on the Red Sea.

Shipping industry representatives emphasized that the safety of the crews was paramount.

The meeting was attended by representatives of the International Chamber of Shipping, the Baltic and International Maritime Council, Oil Companies International Marine Forum, Association of Independent Tanker Owners, International Association of Dry Cargo Shipowners, Cruise Lines International Association, and the World Shipping Council.

Pinoy seafarers’ return

Department of Migrant Workers officer-in-charge Hans Leo Cacdac, on 15 January, said the Department of Foreign Affairs is negotiating the safe return of 18 Filipino seafarers seized  from an oil tanker in the Gulf of Oman.

He said the government is working on the repatriation of the Filipino crew of the oil tanker St. Nikolas that was seized by the Iranian Navy off the coast of Oman on 12 January amid the worsening Middle East crisis stemming from the war on Gaza.

The American tanker, which was en route to Turkey, gained attention in 2023 when the United States confiscated more than 980,000 barrels of Iranian crude oil in a sanctions-enforcement operation.