Red Sea Security Concerns Hit Suez Canal Earnings

Suez Canal earnings fell nearly 25 percent from July 2023 to June 2024 as shipping companies chose alternative routes to avoid Houthi attacks in the Red Sea. The attacks have caused major disruptions and are worsening maritime security with the adoption of advanced technologies from drones to cyber attacks.

By Melissa Cyrill

The Suez Canal’s annual revenue dropped nearly 25 percent in the latest financial year (2023-24) as some shipping companies opted for alternative routes to evade Houthi attacks in the Red Sea.

Egypt’s financial year runs from the start of July to the end of June of the following year.

The Suez Canal offers the shortest maritime route between Europe and Asia, with normal years seeing about 15 percent of global maritime trade by volume passing through here. As shipping companies divert their vessels, alternative routes have increased delivery times by 10 days or more on average, thereby raising costs for firms with limited inventories.

Revenue drops as commercial shipping reroutes to avoid conflict zones

The head of the Suez Canal Authority, Osama Rabie, announced on July 18 that revenues fell to US$7.2 billion in FY 2023-24 financial year, down from US$9.4 billion the previous year. The waterway is a key source of foreign currency for Egypt, and authorities have been keen to increase its revenues, including via an expansion in 2015.

However, since November, Houthi rebels from Yemen have been targeting commercial vessels in the Red Sea and Indian Ocean amid the ongoing Israel-Gaza conflict.

Rabie also noted a decline in Suez Canal traffic, with the number of ships using the canal dropping to 20,148 in 2023-24 from 25,911 the year before.

The volume of trade that passed through the Suez Canal dropped by 50 percent year-over-year in the first two months of the year, and the volume of trade transiting around the Cape of Good Hope surged by an estimated 74 percent above last year’s level. Meanwhile, the transit trade volume through the Panama Canal [due to a severe drought] fell by almost 32 percent compared with the prior year. – IMF Blog

Ripple effects of Red Sea tensions

In its report, the IMF notes the cascading impact of the Red Sea tensions, observing a 6.7 percent decline in port calls across the 70 ports tracked in sub-Saharan Africa.

Similar declines were recorded in the European Union and the Middle East and Central Asia, at 5.3 percent each.

The IMF cautioned that while the decreases likely reflected the temporary effects of extended shipping times, continued disruptions could impact supply chains in affected countries and drive up inflation due to increased shipping costs.

In response, Danish shipping group Maersk, which halted Red Sea traffic on January 5 “for the foreseeable future,” reported on May 6 that the disruption is worsening. The company expects a 15-20 percent reduction in industry capacity between Asia and Europe in the second quarter.

Maersk also indicated on July 1 that carriers and businesses should brace for continued challenges as disruptions are expected to persist into the third quarter. The company had previously forecast these issues would continue at least through the end of 2024.

To adapt, Maersk announced a change in its booking window for Asia-Pacific trades, effective July 15, adjusting it to 28 days. Additionally, the shipping firm increased its ‘Peak Season Surcharge’ in response to ongoing Red Sea tensions, as detailed in a June 21 advisory.

Advanced technology used in attacks at sea

In an expert risk assessment, business insurance firm Allianz Commercial noted that “between November 19, 2023, and the beginning of April 2024, there were more than 50 attacks against merchant shipping in the Red Sea by Houthi militants in response to the conflict.”

Houthi militants have increasingly targeted shipping in the Red Sea and Gulf of Aden using advanced weapons like anti-ship missiles, large drones, and ‘loitering munitions.’ Captain Nitin Chopra from Allianz Commercial explained that modern warfare and weaponry, including drones and explosive devices, pose significant threats to shipping and can be exploited by non-state actors and terrorists.

In future, technologically advanced attacks are expected to become more common. Increasing reports of GPS interference and jamming, particularly in critical areas like the Strait of Hormuz, the Mediterranean, and the Black Sea, suggest growing vulnerabilities. Additionally, spoofing of Automatic Identification Systems (AIS) and cyber-attacks on vessels are potential threats.

• Previous Article Oman Labor Authority Prohibits Expat Hiring in 30 Professions, Details Awaited
• Next Article Intellectual Property Regulations in the UAE