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The shipping industry is being warned about potential rough seas in 2024 due to war and weather conditions.
Economy Middle East

The shipping industry is being warned about potential rough seas in 2024 due to war and weather conditions.

The recent conflicts in the Red Sea have caused major disruptions for international shipping companies, but this is not the only challenge they are currently dealing with as the year 2024 begins.

Major companies such as Maersk warn that the shipping industry, responsible for 90% of worldwide trade, may encounter major disturbances due to various factors such as ongoing conflicts and droughts that could impact important routes like the Panama Canal. The intricate schedules of large container ships, fuel tankers, and other cargo vessels are expected to face disruptions throughout the year.

This will lead to longer wait times and higher expenses for stores like Walmart, IKEA, and Amazon, as well as food producers like Nestle and grocery stores such as Lidl.

According to Jay Foreman, CEO of Basic Fun, based in Florida, there is now a pattern of chaotic events that come and go, disrupting any sense of stability. Just as things seem to be returning to normal, another incident occurs and throws everything off balance. Foreman’s company ships toys from Chinese factories to Europe and the United States.

In 2024, potential risks include an increase in Red Sea attacks reaching the Arabian Gulf, which could impact oil transportation. Additionally, there is concern about the deterioration of China-Taiwan relations, which could disrupt crucial trade routes. According to Peter Sand, chief analyst at Xeneta, these developments could have significant effects on the freight industry. The ongoing conflict between Russia and Ukraine, which began with Moscow’s invasion in 2022, also continues to impact the trade of grains.

On Friday, Maersk, along with other large ocean carriers, redirected their ships away from the Red Sea to prevent possible missile and drone attacks in an area that is a crucial shortcut for the Asia-Europe Suez Canal. This route is responsible for more than 10% of all ocean shipments and almost one-third of global container trade.

As tankers transporting oil and fuel to Europe still travel through the Suez Canal, many container ships are choosing to go around the southern tip of Africa due to Yemeni Houthis targeting ships in the Red Sea. This is in support of Hamas, an Islamist group in Palestine engaged in conflict with Israel in Gaza.

The rise in expenses may result in an increase in prices for buyers. However, according to Goldman Sachs on Friday, the impact of inflation should not be as severe as the turmoil caused by the pandemic from 2020-2022.

According to Alan Baer, CEO of OL USA, the initial quarter will be a bit chaotic for everyone’s financial records in terms of expenses. OL USA specializes in managing freight shipments for their clients.

According to project44, a provider of supply chain software, the number of ships passing through the Panama Canal, which is an alternative to the Suez Canal, has decreased by 33% due to decreased water levels. This has contributed to a significant increase in shipping expenses for dry bulk goods like wheat, soybeans, iron ore, coal, and fertilizer in late 2023.

Increasingly frequent severe weather events are having a more immediate effect than political tensions. Brazil suffered a double-whammy of a historic drought on the Amazon and excessive rains in the north of the country that contributed to a longer-than-usual ship queue at the port of Paranagua in late 2023, just months ahead of peak soybean shipping season.

John Kartsonas, the managing partner at Breakwave Advisors, who serves as the commodity trading advisor for the Breakwave Dry Bulk Shipping ETF, stated that while one may claim an event to be a “one-off,” if it occurs every other month, it can no longer be considered as such.