House Panel Looks at Impacts of Red Sea Shipping Disruptions
February 2, 2024|Kirbie Ferrell
The House Subcommittee on Coast Guard and Maritime Transportation met Tuesday, January 30th to discuss the ongoing maritime attacks in the Red Sea. Per Subcommittee Chair Daniel Webster (R-FL), “Since October, the Houthis, an Iranian-backed separatist group based in Yemen, have sought to disrupt global commerce by significantly increasing attacks against military and civilian vessels transiting the Red Sea. To date, dozens of vessels have been targeted, either through hijacking, attempted hijacking, or missile and drone strikes — putting ships and their crews at risk.”
Before launching into the subject matter of the hearing, Chair Webster made sure to acknowledge the bravery and sacrifice of U.S. Naval forces working tirelessly to protect American, and international, shipping and citizens. Two service members, Navy Special Warfare Operator 1st Class Christopher Chambers and Navy Special Warfare Operator 2nd Class Nathan Ingram, were lost in mid-January while attempting to board a ship suspected of illegally transporting supplies to Houthi forces in Yemen.
With emphasis on the need to protect US mariners and service members, the remainder of the hearing discussion centered on shipping and personnel impacts, overall supply chain impacts, and the outlook on ending Houthi attacks in the Red Sea. The subcommittee invited the following witnesses to provide testimony and respond to member questions:
- Bud Darr, Executive Vice President of Maritime Policy and Government Affairs, Mediterranean Shipping Company (MSC)
- Ian Ralby, Chief Executive Officer, I.R. Consilium
- Jonathan Gold, Vice President of Supply Chain and Customs Policy, National Retail Federation
- David Heindel, President, Seafarers International Union
Shipping and Mariner Impacts
As Rep. Salud Carbajal (D-CA) noted in his opening comments, the shipping route which traverses the passageway way through the Suez Canal into the Red Sea and eventually the Gulf of Aden is a critical one for global shipping. This pathway moves about 12 percent of total global trade annually. Recent instability, due to Houthi forces targeting maritime vessels in the Red Sea and Gulf of Aden, has significantly impacted cargo movements through this region. Coupled with low water levels in the Panama Canal preventing normal passage volumes from the Pacific into the Atlantic Ocean in the west, global shipping has been constrained globally.
Due to challenges in the Red Sea in particular, operators have been forced to adopt additional measures to protect ships and cargo, which have included things like paying increased insurance rates, hiring private security for vessels, and rerouting vessels to avoid the region altogether. Jonathan Gold of the National Retail Federation expounded on the challenges carriers are facing. War risk and emergency contingency surcharges are being levied to account for the elevated risk of moving goods through the region, raising questions of whether they are fully necessary or exaggerated to increase profits. Gold provided an example of one carrier requesting an increase of $1,500 to $3,000 per container which represents an increase in cost of somewhere between 38 to 73 percent depending on the cost of the underlying goods in the container.
In response to the risk of moving through the Red Sea, many carriers have opted to forego the route altogether, instead selecting to reroute their ships around the Cape of Good Hope along the coast of South Africa. David Heindel of the Seafarers International Union discussed the impact of rerouting ships. While this change reduces the risks of moving through the Red Sea, traversing around the Cape of Good Hope adds nearly two weeks to a typical voyage each way. Rerouting impacts delivery schedules and on-time performance as well as the flow of containers and availability of empty containers at ports.
Overall Supply Chain Impacts
In discussing overall supply chain impacts and how rerouting and cost changes have affected domestic goods movements, witnesses each echoed a similar sentiment. At this time, supply chains have not seen the severe impacts like those which occurred during the COVID-19 pandemic. The full impacts of the Red Sea attacks and Panama Canal water levels on US supply chains remain to be seen, but there is reason to believe they may be dampened since. Bud Darr of the Mediterranean Shipping Company repeatedly emphasized that U.S. supply chains are far better prepared to handle crises in this area than they were pre-pandemic. Because companies have made so many shoreside adjustments and are still carrying a lot of additional capacity post-COVID, supply chains are adapting more easily to changes in goods movement.
Regardless of shoreside capacity, each witness also cautioned that supply chains are seeing some impacts which could intensify as instability in the Red Sea continues. The Suez Canal and Red Sea region is a critical passageway for containerized shipping. At this time, according to Heindel, the region is seeing a reduction of about 70 percent in transiting ships and a 50 percent reduction in cargo moving through the region. Because this area moves approximately 25 percent of global containerized shipping trade, there is a potential to see increases in the prices of goods and other related consequences. Gold made similar points in his comments, noting that it may take 10 to 14 days or longer for supply chains to compensate for longer sailing times. He continued to mention that some freight companies have already made adjustments, such as utilizing west coast ports or shifting freight modes to carry more by rail or air. Nevertheless, US supply chains need to begin planning now for late summer and fall consumer needs for things like back-to-school shopping.
Red Sea Outlook
There was consensus among the witnesses on the goods impacts and the state of the supply chain, the area of major disagreement in the room related to the handling of the conflict. Dr. Ian Ralby of I.R. Consilium primarily spoke to this portion of the issue. Although the United StatesS has seen piracy issues in the past, like that of Somali pirates, Dr. Ralby argued that the Houthi attacks are distinct from prior piracy attacks, such as those of Somali pirates more than a decade ago, in that they are not primarily financially motivated. He said that the Houthis have opportunistically taken advantage of the instability in Gaza to further their interests of gaining control of different land in the region, and they have found a temporary ally for arms support in Iran. Ralby repeatedly encouraged members to look for ways to deescalate and draw attention away from shipping rather than engaging and giving Houthis the ability to attract more support for their cause by warring with the United States — a position that landed unfavorably with members like Reps. Brian Babin (R-TX) and Brian Mast (R-FL), who seemed to favor the idea of the United States answering with force.
However, regardless of conflicting thoughts on addressing Houthi forces, there was complete agreement amongst panelists on the severity of the crisis and unprecedented nature of attacks and corresponding weaponry. Dr. Ralby, Darr, and Heindel each spoke to the arms capabilities of the Houthi forces and reiterated that this situation is unparalleled in relation to past piracy conflicts in terms of the weapons capabilities of the attackers. Heindel referred to this conflict as the greatest threat to mariners since World War II, as Houthi forces are armed in the most technologically advanced way ever seen, maintaining supplies of drones, anti-ship cruise missiles, anti-ship ballistic missiles, and other advanced weaponry. In agreement, Darr maintained that as far as nonstate actors, their sophistication of weaponry and targeting is unprecedented.
While there is no easy solution to address Red Sea instability, panelists did provide thoughts on improvements needed to manage the crisis, including U.S. communication strategy solutions and methods to continue strengthening the supply chain and shipping overall. Of the enhancements offered, one of the most obvious yet interesting was provided by Heindel along the lines of the well-known phrase “loose lips sink ships.” Media coverage providing nearly real-time location data and images of U.S. vessels in the region increases risks for American crews and vessels. Additionally, there is a need for more secure vessel communications between commercial and military ships in the area.
For ships, supply chains, and ports, numerous improvements were provided. For U.S. supply chains, panelists suggested maintaining and continuing to invest in internal port capacity and efficiency, as well as workforce capacity. Beyond ports, increasing connection capacity for rail and improving road network can better link ports to the greater freight movement network. For shipping and this conflict specifically, the first step is rerouting nonessential trips to avoid the region and protect mariners. When necessary to transit these waters, there are tools which can increase vessel safety such as encouraging the use of Best Management Practices 5 (BMP5) for hardening vessels against piracy, providing resources on safe harbor options for vessels, ensuring effective communication channels to U.S. combat vessels in the region, and providing support and resources to African ports which may take on increased shipping volumes due to changing travel demands.