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Red Sea Shutdown: Understanding the Supply Chain Crisis in the Red Sea

January 17, 2024

Following continued attacks by Houthi Rebels on container ships transiting the Red Sea, major carriers have once more begun to halt operations in the region. On Jan 2, Danish carrier Maersk announced that it would once more pause Red Sea shipping operations following an attack by Houthi Rebels on their vessel, Maersk Hangzhou. “An investigation into the incident is ongoing, and we will continue to pause all cargo movement through the area while we further assess the constantly evolving situation,” Maersk said in a Jan. 2 press release. “In cases where it makes most sense for our customers, vessels will be rerouted and continue their journey around the Cape of Good Hope.”

With Maersk and other major carriers diverting shipments around the Cape of Good Hope, which can add up to two weeks of additional transit time, shippers are under pressure to develop effective resilience strategies. In this article, we’re delving into the history of maritime operations in the Red Sea, the true consequences of disruption in the region, and how shippers can leverage technology to bolster operational resilience in the face of a volatile supply chain.

The Importance of the Red Sea in Global Trade: Context and Consequences

While today’s crisis may appear unprecedented, it’s not the first time that invaluable Middle Eastern shipping lanes have been shut down by conflict. In this section, we’ll look at the history of the Red Sea and Suez Canal in maritime logistics, as well as the consequences of today’s crisis.

The Red Sea and the Suez Canal

Since the construction of the Suez Canal, the Red Sea has played an invaluable role in the development of the global supply chain. Prior to the construction of the Suez Canal, ships had no choice but to sail around the southern tip of Africa in order to travel between European and Asian markets. For 155 years, the Red Sea has played an integral role in what has since become one of the supply chain’s most waterways.

Despite this historical importance, today’s crisis is not the first instance in which passage through the Suez Canal and the Red Sea has been disrupted. Following the culmination of the Six-Day War between Israel and a coalition of Arab states, the Suez Canal was shuttered from 1967 to 1975. This shutdown resulted in a major restructuring of global supply chains and significant consequences for carriers, shippers, and consumers alike.

Red Sea Crisis 2024

While our world has vastly changed since the canal reopened in 1975, the region’s integral role in maritime trade has not. As it was in 1975, the Middle East plays host to one of the planet’s largest sources of oil. In 2023, the Wall Street Journal reported that 4.7 million barrels of oil passed through the Suez Canal each day.

But it’s not just oil: the Suez Canal and the Red Sea play a vital role in the Europe-Asia route, which accommodated 30% of global container traffic in 2023, according to Reuters. Disruptions of container trade between Europe and Asia could have disastrous effects on the valuable CPG sector, as well as the automotive and manufacturing industries.

Already, shippers have seen a significant rise in container shipping costs, according to CNBC.

  • Rates from Asia to North America’s East Coast have increased by 55% to $3,900.
  • Rates from Asia to North America’s West Coast have increased by 63% to $2,700.

Despite the hopes of shippers, continued escalations by Houthi Rebels make clear that, for the world’s carriers, the Red Sea will continue to pose a risk to the safety of their sailors and vessels. As carriers continue to halt shipments and are forced into lengthy diversions around the Cape of Good Hope, shippers need to prepare for the worst.

Deep Dive: What’s Behind the Red Sea Crisis 2024?

Following the start of the Israel-Hamas War, Houthi Rebels, backed by Iran, pledged to target any ship traveling to Israel through the Red Sea. The rebels intend these attacks to be viewed as a part of Hamas’ broader war against Israel. In November, rebels attacked and hijacked a ship they believed to be Israeli (though it was later revealed that neither the vessel nor the crew were Israeli).

Following this hijacking, rebel fighters have continued to attack vessels operating in the region. Despite efforts by the militaries of the U.S. and other nations to quell the continued violence in the Red Sea, attempts to put a stop to the attacks have been largely unsuccessful. Furthermore, these efforts have not resulted in any sort of de-escalation of tensions in the region. According to reporting from Al-Jazeera, Iran has recently positioned a warship in the highly strategic chokepoint of the Bab al-Mandeb Strait. While a conflict between Iran and the U.S. is far from imminent, Iran’s decision to position a warship so near active fighting demonstrates Iranian commitment to the cause of the rebels and, more broadly, Hamas.

Ultimately, the ongoing tensions in the region point to a singular fact: the Red Sea and the Suez Canal, once invaluable linchpins of the global supply chain, must now be viewed as high-risk transits. As the conflict continues to escalate with no end in sight, shippers are desperate for strategies to improve resilience in their maritime operations in the Red Sea.

A Worsening Crisis Underscores the Importance of Supply Chain Resilience

By following a few simple strategies, shippers can ensure they have the resilience to build durable operations while maintaining the agility necessary to adapt to a dynamic shipping landscape.

Invest in End-to-End Visibility

Prioritizing end-to-end visibility is crucial for shippers grappling with uncertainties, such as those occurring in the Red Sea region. Advanced intermodal container tracking emerges as a vital asset, cutting through the tumult and offering a panoramic view of container movements across ocean and rail operations. This visibility, spanning from origin to destination, empowers shippers to monitor and respond to unfolding situations.

Operational agility, a cornerstone of effective supply chain management, receives a significant boost from enhanced visibility. The ability to foresee potential disruptions due to the Red Sea crisis allows proactive decision-making, providing a competitive edge in swiftly adapting routes, carriers, or transport modes.

Build Real-Time Awareness

Real-time awareness becomes the linchpin of effective risk mitigation In an environment marked by crisis. The significance of immediate information dissemination is recognized and addressed through automated exception alerts. These alerts are an early warning system, notifying shippers promptly about any deviations from the planned course — whether due to blank sailings, last free day (LFD) changes, or demurrage and detention issues.

The ability to customize alerts according to specific parameters empowers shippers to tailor their risk management strategies. With their precision and adaptability, automated alerts play a pivotal role in minimizing the potential consequences of disruptions caused by events like the Red Sea crisis. They provide crucial moments to respond effectively, preventing cascading issues from impacting the entire supply chain.

Leverage an Integrated Tech-Stack

In the age of interconnected systems, it’s impossible to overstate the value of an integrated tech stack. API integration, a hallmark of modern logistics technology, is central to the seamless functioning of such stacks. The integration prowess extends beyond API capabilities, ensuring the smooth flow of information between diverse systems.

The comprehensive system integration approach ensures harmonious collaboration with existing technologies, eradicating data silos and promoting a unified view of the supply chain. The result is an efficient, streamlined operation that can readily adapt to disruption and challenges.

As Tensions Increase, Shippers Turn to Technology to Develop Operational Resilience

As tensions in and around the Red Sea continue to escalate, shippers are desperate for resources to build true operational resilience. By leveraging true end-to-end visibility through an integrated ocean container tracking API, shippers can access the real-time awareness they need to adapt to even the most dynamic supply chain crises.

Book a demo with OpenTrack today, and learn how ocean container tracking can help bolster resilience in your containerized operations.

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