Red Sea caution

Published January 15, 2024

The Houthi retaliation represents a danger to worldwide maritime transport. A resolute response is imperative for sustained global prosperity. To ensure the unimpeded passage of ships, particularly through vital chokepoints like the Strait of Malacca or the Panama Canal, addressing the recent surge of attacks in the Red Sea — crucial for access to the Suez Canal — stands as an urgent concern.

The Houthis, backed by Iran and situated in Yemen, have targeted ships from numerous nations, affecting freedom of navigation, all in support of the Palestinian cause. This pattern endangers not just the Red Sea route but echoes threats in other critical waterways. Effective action, without escalating Middle Eastern conflicts, is crucial for stability.

Approximately 20 per cent of global container volumes, 10pc of seaborne trade, and eight to 10pc of seaborne energy transit via the Red Sea and Suez Canal. However, recent disruptions have prompted major container-shipping companies to halt operations, and energy behemoth BP has paused oil shipments through this route.

While energy markets have remained relatively stable due to sufficient supply, container firms are experiencing soaring stock prices, indicating potential capacity shortages. The resultant spike in shipping costs between Asia and Europe signifies an imminent supply chain crunch.

Disturbances in the operations of critical maritime passages can have ripple effects on Pakistan’s trade, business, and port activities.

The formidable arsenal of drones and missiles possessed by the Houthis, supplied by Iran, will have a major impact, especially as these proxy forces target various interests in the region, given the militia’s capability to strike critical oil facilities in Saudi Arabia.

What do the disruptions in the Red Sea and Suez Canal mean for Pakistan’s economy, business landscape, and port activities? As a country highly dependent on imports, especially through maritime routes, any hindrance in the smooth passage of ships through critical waterways like the Red Sea can pose challenges.

Pakistan’s economy primarily relies on imported raw materials, with seaborne trade being a major component. The country’s ports, including Karachi Port and Port Qasim, serve as vital gateways for imports and exports. Any disturbances or interruptions in the Red Sea route or Suez Canal directly affect Pakistan’s trade, leading to delays in cargo shipments, increased transportation costs, and potential disruptions in the supply chain.

This, in turn, can impact various industries, including textiles, agriculture, and manufacturing, which heavily rely on imported raw materials and components.

Pakistan’s business landscape could witness adverse effects due to disruptions in these maritime routes. Many businesses rely on timely imports and exports to maintain their operations, and any delays or uncertainties caused by disruptions in the Red Sea could hamper their efficiency and profitability.

Increased shipping costs and potential supply chain bottlenecks might force businesses to reassess their strategies, leading to higher operational expenses and possible price hikes for consumers.

The activity in Pakistani ports, particularly the transhipment and handling of goods destined for or arriving from various international locations, may experience slowdowns or complications. If major shipping lines opt to reroute vessels away from the disrupted Red Sea route, Pakistani ports might experience reduced traffic, impacting port revenues and overall port-related activities.

This profoundly impacts Pakistani cargo companies and organisations heavily reliant on ports and shipping. Companies like Maersk Pakistan, operating as a vital player in Pakistan’s shipping and logistics sector, could face substantial challenges due to delayed or rerouted shipments, increasing operational costs, and uncertain delivery timelines.

With their trade routes traversing through the affected areas, these companies may encounter disruptions in supply chains, impacting their ability to meet client demands promptly.

Local industries, such as the textile sector, are also highly reliant on timely raw materials and machinery imports. Any disturbances in shipping schedules could lead to production slowdowns and increased costs for manufacturers.

Moreover, local exporters, including rice, fruits, and leather goods exporters, may face setbacks in accessing international markets due to delayed or interrupted shipping routes, adversely affecting their competitiveness and market share.

This will affect Karachi Port Trust and Port Qasim Authority, which could experience decreased port activity and revenue if shipping lines opt for alternative routes, impacting their operations and financial stability. The slowdown in port activity will lead to challenges and affect the efficient handling of cargo, causing revenue losses for these organisations, which rely on port-related activities.

Therefore, any disturbances in these critical maritime passages can have ripple effects on Pakistan’s trade, business, and port activities, necessitating strategic planning and proactive measures to mitigate potential disruptions.

It will translate into logistical challenges, increased costs, and operational hurdles for Pakistani cargo companies, local industries, exporters, and port authorities, ultimately impacting Pakistan’s overall trade and economic landscape.

Published in Dawn, The Business and Finance Weekly, January 15th, 2024

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