Earlier today, the Secretary of State announced the designation of the Huthis as a specially designated Global terrorist effective February sixteenth, for threatening the security of the United States. These attacks against international shipping have endangered mariners and disrupted the free flow of commerce and freedom of navigation for the past several weeks. The United States, with allies and partners around the world, has made clear that there must be consequences for those attacks.
As the fighting between Israel and Hamas rages on, the effects of the conflict are starting to spill over into the rest of the region. In response to the ongoing war, the Huthis, a Yemeni militant group, began firing rockets and conducting drone strikes against Israel on October nineteenth. Soon after, the Uthis employed an additional tactic, attacking commercial shipping vessels in the Red Sea on the way to and from the Suez Canal, a crucial artery for global trade that
connects Asia with Europe. Israeli allies, including the US and UK, have since responded with airstrikes of their own to try and deter these attacks, but freight companies are already wary. They've largely redirected their ships to take alternate routes that are significantly longer today on the show, what these disruptions mean for the global economy now and in the long run, and what companies are doing to secure their supply chain. From Bloomberg News, this is the big take. I'm Sarah Holder.
International shipping has faced some complications in recent years, none more damaging than the COVID pandemic.
Supply chains were squeezed during the pandemic to extraordinary levels, but in twenty twenty three, costs of shipping came down dramatically and goods flowed smoothly around the world and broadly speaking, supply lines were functioning.
And the current writes about the global economy for Bloomberg News.
Well, if you thought all the problems were ironed out, what's happening in the Red Sea is a very blunt reminder that those problems haven't gone away at all.
And this spoke with our producer Alex Sagira about the ongoing situation in the Red Sea.
Then you take us through what this disruption actually looks like. For instance, where do these ships go instead of through the Red Sea?
So the practicalities of This is that these ships get loaded up with say, merchandise goods right around East Asia and they sail through the Red Sea on the way to the Suez Canal, primarily for the European market, but not only for the European market. It also serves America
from that side of the world. But what's happening now, of course, is due to the conflict in the Red Sea, that's more or less cutting off the Suez Canal for a lot of international shippers, and instead they're going right around the bottom of the South of Africa, around the Cape of Good Hope and heading up the Long Way.
And the numbers are pretty staggering.
The International Monetary Fund has run some numbers and they estimate that transit volume through the Suez Canal is down by around thirty seven percent up to about mid January compared with a year earlier. And then the correlation of that is that volumes going around the Cape of Good Hope have surged by around fifty four percent.
What are analysts telling you about the long term or even medium term impacts of these attacks.
So there's a kind of a benign take on all of this. The beninn take is, look this conflict will de escalate, it's happened before, and ultimately security will be restored and these ships can return to the Red Sea and in the Swez Canal, And even if it's not for the moment, there are alternatives around the South of Africa, and of course there's plenty of freight options out there.
That's the kind of hopeful take. But those same people will also say to you, the longer this drags on, the more worrying it will become.
Those concerns are centered on rising costs for manufacturers, freight end consumers.
There's a dual impact on the world economy here. On the one hand, you have the extra shipping costs and the extra freight costs associated with this conflict in the Red Sea is sparking worries that ultimately this might mean higher prices for consumers, which of course means faster inflation at a time when the world is hoping inflation is slowing down.
It isn't just the price of consumer goods that will rise from these disruptions. The Seuez Canal is also how Europe gets its oil.
There's also though, the impact on energy costs because if its conflict continues, if it deepens if it broadens out in the rest of the region. The concern is there, of course, is two things. A energy won't be able to be shipped through that part of the world, and again it's a crucial artery for a energy and b the cost of oil could go higher.
In his reporting, and just spoke not just with analysts and economists, but also with business owners who are already scrambling to solve these supply chain issues.
One of those I spoke to was Hans vand and Elsen. He runs an Arizona based company called Yoyo Factory. They make their yoyos in Shenzen, and they make it for markets that include the US, Canada, and Mexico, across Europe and Japan. So he's on both sides of this. He's getting his goods across the specific to America, okay, but he also has to get his goods from Shenzen to Europe, and that's where he's getting a little bit worried about
how this conflict does play out. You know, if it's a near term we'll say de escalation, then he's not too concerned about the overall hit to his business, the overall hit to his costs he'll get his yoyos to Europe and time. But the longer this drags on, the more worry he's getting. And that's why he's talking about, you know, the time for him to build up his inventory of stocks to make sure he doesn't run low.
He's keeping an eye on the costs of all of this and how much of it he can pass on to his customers, and of course he's looking for alternatives. One possible idea he spoke about was he could ship his produce from Shenzen over to the US and from when you asked, across to Europe. That gets the product there, but that will be extra cost.
Those analysts, business owners and even governments are trying to adapt in real time, but it's hard to anticipate how the conflict will unfold after the break. What are the prospects for de escalation in the Red Sea and what can companies do to make their supply chains safer against shocks. We're back earlier. Our colleague Enda was describing the hope that these Red Sea attacks could cease sooner rather than later. But I wanted to talk with Bloomberg's Mohammed Hattem, who
reports on economics and politics in Yemen. For some background on the huthis, what's happening on the ground in the country and the chances in the short term for de escalation. We spoke earlier via zoom. Have you spoken with any Houthi representatives who've shared more about their strategy.
I talked to one of their leaders, Muhammad aal Buffetti, and he was telling me that they will not stop, you know, these kind of attacks until you know the end of Israeli offensive, because he said, this is a good opportunity for them to show. Also there might and strange region wise and maybe across the globe.
That global influence is underscored by the amount of international trade being disrupted by their attacks on vessels in the Red Sea. According to Flexport, a digital logistics platform, over five hundred container ships have already been rerouted away from the seas canal, which is about a quarter of the world shipping capacity. What are you hearing from people on the ground in Yemen.
Yemen has been under a sort of brutal, you know, conflict that has been dragging four years. It has created a massive suffering, It has created the very dire humanitarian situation and the UN describe it as the world's wars humanitarian crisis. Now they are into another conflict and we don't know for how long it's going to take and how it will turn. So there is a sort of uncertainty, a sort of concern, a sort of worry about the situation.
US and UK air strikes have targeted Houthi weapons caches in hopes of sending a message that these attacks will have serious consequences, but the Huthis have kept attacking anyway. I asked Mohammed, when all this fighting could end, what are the prospects for de escalation in the Red Sea.
The hohoth Is on their side, they are not detered, you know, by any attacks by strikes, by the warning by the UN Security Council resolution, and they are determined to continue these attacks on the ships. They said, these ships are bound to Israel and we will try to stop them. But the Americans and the international community consider
what the Houthis are doing. It's not an attack on the Israeli ships, but attack on the international trade because they have touched the nerves of the economy of the international community. And I think the International Committee has responded to this, and the response has been also gradually you know it's not. But with this determination of the houses to continue and they're firing attacks, and now they are attacking,
we will see more and more exclation. And I think maybe the Americans they will escalate along with their allies further in the future, and then maybe it will develop into a sort of killing maybe healthy leaders, massive operations or massive strikes, and I think we are likely to see a long term conflict that is not going to end soon.
Companies caught in the crossfire are pondering ways to harden their manufacturing infrastructure.
Here's and again, industry executors say, this just puts another focus in the whole story of near shoring, friend shoring, relocating, diversifying your industrial manufacturing base, making sure you are not vulnerable assumaty supplied choke points around the world, be it war, be it disease, be it climate.
At the core of these strategies is a focus on how to streamline production and avoid middleman. Brandon Daniels, CEO of logistics firm Exeger, recently spoke on Bloomberg TV about this and.
Then that means investing in innovative ways to diversify your supply chains. Across maybe different materials or different suppliers, so that you have control over those supply and shipping lines.
Who The attacks on commercial vessels in the Red Sea are rearranging the ways the world can continue to effectively do commerce, and with the conflict showing no signs of stopping soon, companies are thinking critically about how to insulate their supply chain from the dangers of today's international waters. Thanks for listening to the Big Take from Bloomberg News. I'm Sarah Holder. This episode was produced by Alex Suguia. It was edited by Ben Holland and Naomi Shaven. It
was mixed by Blake Maples. Our senior producers are Naomi Shaven and Jilda Di Carley. We get editorial direction from Elizabeth Ponso. Sage Bauman is our executive producer and head of podcasts. Thanks for tuning in. We'll be back tomorrow.