Why the situation in the Red Sea will weigh on prices in the West

Most maritime carriers are refusing to use the Suez Canal which connects the Red Sea and the Mediterranean. Considered a maritime highway, the Red Sea connects the Mediterranean to the Indian Ocean, therefore directly from Asia to Europe, in both directions. And since October 19, more than twenty attacks have been carried out by Houthi rebels against international ships in this region which sees 12% of world maritime trade.

Ships are diverted to the Cape of Good Hope, off the coast of South Africa, which extends the journey by a good week, obviously leading to a significant increase in prices. The French CMA-CGM announces the almost doubling of its freight rates from January 15. Concretely, the Marseille shipowner will increase the transport of a forty-foot container (the equivalent of 67 m3) from 3,000 to 6,000 dollars (5,500 euros). The Italian-Swiss MSC has just increased its prices by 1,800 euros per container for trade between the Mediterranean and the Arabian Peninsula. As for the Danish Maersk, whose container ship was hit by a missile on Sunday December 31, it has simply decided to temporarily interrupt its passage through the Red Sea.

Rising prices and disruption in logistics

This poses a problem for Europe’s supply of goods of all kinds, with all the logistical consequences. The Swedish furniture giant, Ikea, anticipates possible delays in the delivery of certain products, or even their absence from the shelves.

In all cases, this situation adds to the general inflationary context: logistical issues which complicate supply chains, increase transport costs, and therefore the production and sale of products and everyday consumer goods in our stores. This pushes economists to envisage a lasting continuation of inflation… in any case a slowdown in the rise in prices much less rapid than expected.