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High risk of inflation, attacks in the Red Sea are "flying" transport costs

2024-01-24 13:20:56Kosova&Bota SHKRUAR NGA REDAKSIA VOX

High risk of inflation, attacks in the Red Sea are "flying" transport

Rerouting by major shipping lines and potential disruptions to the Suez Canal pose challenges for Europe, with inflation and fluctuating energy prices becoming significant concerns. Recent events in the Red Sea, including attacks by the Iran-based Houthi group, have disrupted the shipping sector, crucial to trade between Europe, the Middle East and Asia, raising concerns about a possible revival of inflationary pressures. The ensuing fear has caused major shipping companies to change their routes to avoid the Red Sea and the Suez Canal, opting instead for the longer journey around the Cape of Good Hope. This decision has had significant consequences, notably a drastic increase in transport costs and times.

Earlier this month, in response to these attacks, the US and UK conducted airstrikes on more than 60 Houthi targets in Yemen. US President Joe Biden stated that the attacks will continue "as necessary" to protect the flow of international trade. However, the cost of shipping goods from Southeast Asia to Europe has risen to more than $6,000 (€5,500), a near-triple from last month and poses a risk of supply chain disruptions and rising consumer prices, especially as global inflation has shown signs of easing.

The Suez Canal, a vital passage for 18% of global trade, is currently at risk. It is essential for the transit of about 20% of the world's oil and 25% of global LNG (liquefied natural gas) trade. In the Europe-Asia trade, 40% typically goes through the Red Sea, with the alternative route around the Horn of Africa costing around $1 million (€920,000) extra in fuel costs for a round trip.

The Director-General of the World Trade Organization, Ngozi Okonjo-Iweala, has warned that geopolitical conflicts, including those in the Red Sea and the Suez Canal, could significantly disrupt the recovery of global trade in 2024. Maritime transport forms the backbone of the corridors European Union-China trade, accounting for 90% of their trade. According to Eurostat data, imports from China reached 626 billion euros in 2022, while exports were 230 billion euros.

The Netherlands was the largest importer of goods from China among the member states, with imports at 138.8 billion euros. Germany followed with 130 billion euros and Italy next with 57.5 billion euros. The Czech Republic had the highest share of China in its non-EU imports at 47.7%. The three largest exporters to China in terms of exports were Germany (€106.85 billion), France (€23.7 billion) and the Netherlands (€18.7 billion), with Germany having the largest share of China in its non-EU countries. -'s. exports to the extent of 15.0%.

Major imports from China included telecommunications equipment, automatic data processing machinery, electrical machinery and organic-inorganic compounds. The most important categories of goods exported from the EU to China were machinery and vehicles (52%), followed by other manufactured goods (19%) and chemicals (16%). New inflationary risks emerging from the Red Sea disruptions could signal a resurgence of economic challenges for Europe. As shown in a recent IMF study, import prices were responsible for 40% of the overall changes in European consumer inflation in the last two years.

Consequently, the increased costs associated with importing goods from Asia are likely to be passed on to end consumers, leading to inflationary concerns. It is essential to closely watch the price swings in energy commodities in the coming weeks. While energy commodities account for roughly 10% of eurozone spending, fluctuations in their prices can have a significant impact on overall European inflation.


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