Red Sea shipping crisis: Houthi attacks drive prices up, Chamber of SMEs says

Malta is already feeling the impact of higher inflation caused by escalating attacks on commercial vessels in the Red Sea, the Chamber of SMEs said. 

The Bab el-Mandab Strait at the mouth of the Red Sea has turned into a guantlet for commercial ships in the wake of  the Israel-Hamas war. 

Behind these attacks are the Iran-backed Houthi rebels from Yemen that have expressed support for Hamas and explicitly stated their intention to target ships heading or linked to Israel.  

Following these attacks and the potential for future threats, major shipping companies like the Mediterranean Shipping Company and Maersk have rerouted their vessels on a significantly longer path around the Cape of Good Hope in the south of Africa and then up the west side of the continent. 

This detour and the higher insurance premiums have increased shipping costs and created supply chain delays. Around 15% of the world’s seafaring trade passes through the Red Sea on its way to the Suez Canal and into the Mediterranean. 

Some shipping companies have directed their vessels to take the longer route round the tip of southern Africa

A spokesperson for the Chamber of SMEs told MaltaToday that the impact on Malta because of these disruptions is already being felt. 

Shipping companies have raised their rates even before the new year started, with 20-foot containers experiencing a 20% increase in price and 40-foot containers a 24% hike. These increases coupled with possible delays in shipments could significantly squeeze Maltese businesses and consumers, the spokesperson said. 

“Everything we eat, wear and use comes from ships,” he said. Almost all products imported from the east pass through the Red Sea before reaching the Mediterranean. 

Apart from this, inflation can also be intensified through energy supply issues, as oil tankers and vessels carrying gas to Europe will likewise incur added costs. This increase will further contribute to the rise in production costs, which will finally be incurred by consumers. 

With Iran expressing its determination to persist in longstanding efforts to exert pressure on Israel, it appears that the Red Sea crisis is only in its initial stages, leaving many in Malta with a grim start to the new year. 

The Red Sea crisis comes on the back of the EU’s extension of the CO2 emissions trading scheme (ETS) on the shipping industry. The ETS is part of Europe’s ‘Fit for 55’ package of laws to achieve climate neutrality, and will levy a cost on the maritime industry to offset their carbon emissions, each time they sail into an EU port, or from one EU port to the other. 

This measure will be heavily taxing on Malta and Cyprus in particular, given that trade in the two member states is primarily supplied through the maritime sector. 

The Chamber of SMEs described the ETS as a more worrying development than the attacks by the Houthis, given that a coalition of Western states is patrolling the Red Sea in order to mitigate the situation. 

The spokesperson described the back-to-back developments as “a perfect storm,” with many businesses in Malta holding their breath every quarter as they await the EU’s quarterly revision of the carbon tax scheme. 

With no sign of Malta negotiating any concession with the EU, there is currently little hope that pressure from the ETS will ease.