Red Sea crisis affects African ports

Red Sea crisis affects African ports

Thu, 29th Feb 2024

Article tagsEconomyRiskSupply chainsMiddle East and AfricaCountry Analysis

• The Red Sea security crisis has seriously and negatively affected traffic through Africa's Red Sea ports but has benefited some ports elsewhere through increased demand for bunkering and restocking services.
• However, inefficiencies and congestion have prevented major African ports from fully exploiting the increase in trade around the Cape of Good Hope caused by diversion away from the Red Sea.
• The crisis may focus the minds of African policymakers to push ahead with port development strategies that will help to build intra-African and international connectivity, capacity and efficiency in the coming years.

As the Israel-Hamas war continues into its fifth month there is a growing sense of unease among the international community. Yemen-based Houthi militias began launching missiles and drones at targets in Israel in mid-October, but quickly changed their strategy to attack commercial shipping off the waters of Yemen-specifically the Gulf of Aden, the Bab al-Mandab Strait and the Red Sea. The first maritime attack was the hijacking of Galaxy Leader, a vehicle carrier, on November 19th, and since then the Houthis have successfully and unsuccessfully targeted scores of cargo ships, container ships, vehicle carriers, bulk carriers and tankers. By the end of February the Houthis had attacked around 50 commercial vessels and a handful of military vessels stationed in the region.

The attacks have not been deterred by the US-led maritime task force that was created in mid-December or by waves of missile attacks by the US and UK directed against Houthi launch sites, radar installations and weapons storages. Instead, the Houthi leadership has signalled its resolve and intent to harass commercial shipping until Israel halts its attacks on Gaza-a show of support for Hamas militias and protest against the high level of deaths, injuries and displacement of Palestinian civilians. Major ocean carriers, including Maersk, Hapag-Lloyd and MSC, which have mostly suspended their Red Sea transits, have warned clients to prepare for prolonged Red Sea disruption and a crisis that could stretch well into the second half of 2024.

Negative impact on Red Sea ports

The extent of the Houthi threat prompted many shipping companies to start diverting their vessels away from the Red Sea area in mid-December, and this has continued into February-as shown by the sharp fall in transit through the Suez Canal. The canal typically handles over 95% of ships travelling between Asia and Europe, facilitates about 30% of global container traffic and contributes to the movement of about 12% of global goods trade. According to the UN Conference on Trade and Development (UNCTAD), monthly transits through the Suez Canal were down by 37% year on year in January 2024, and the Suez Canal Authority has indicated that revenue is likely to have fallen by about 40% year on year in the same month.

The Suez Canal generated a record US$9.4bn in revenue in 2023 and restoring business-as-usual operations through the canal is considered crucial for Egypt to regain an important financial lifeline and help to tackle the country's ongoing economic crisis and severe foreign-currency shortage. Elsewhere in the Red Sea area, African ports in Sudan, Eritrea, Djibouti and Somaliland must contend with reduced vessel availability and much higher freight costs and insurance premiums to the detriment of their maritime trade. Similarly, Saudi Arabia's Red Sea ports, especially the Jeddah Islamic Port, will be feeling the strain caused by disruption, diverted traffic and elevated operating costs.

Boost for alternative east-west routes

Many shipping companies that were transporting goods through the Red Sea to connect locations that lie to the east and to the west of the Suez Canal-maritime routes that connect the Middle East, Asia and East Africa with Europe, North Africa, West Africa and the Americas-are diverting around the longer but more secure route that navigates the southern tip of Africa. The redirection of global shipping has greatly increased demand for bunkering and restocking services at some African ports, especially those strategically located on the maritime route around the Cape of Good Hope.

South African ports, especially Durban, Cape Town and Gqeberha (formerly known as Port Elizabeth) have benefitted from their strategic location and sophisticated port and logistical infrastructure compared with many other African ports. However, South Africa may have picked up new business, but its ports have been constrained by inefficiencies, congestion and power supply issues that have prevented operators from fully exploiting the Red Sea security crisis and the increased flow of seaborne traffic. In addition, South African bunkering services in the relatively sheltered Algoa Bay (centred on the ports at Gqeberha and Ngqura) are largely suspended because of a tax investigation being carried out by the South African Revenue Service.

The travails of South Africa have pushed some shipping companies using the Cape route for east-west trade to look further afield for restocking and bunkering services. This has directly benefitted Madagascar (Toamasina), Mauritius (Port Louis) and Namibia (Walvis Bay), which are strategically located on the east-west route connecting Asia with Europe.

Major ports in East Africa including Mombasa (Kenya), Dar es Salaam (Tanzania) and Beira (Mozambique) lie outside the traditional shipping lanes connecting Asia with Europe but have benefitted from increased traffic to and from ports located in the Persian Gulf that are avoiding the Red Sea and instead navigating the Cape. However, these East African countries themselves rely upon the Suez Canal as an important route to key suppliers and markets in North Africa and especially Europe-which implies higher costs, longer delays and disruption for shipping companies and port operators.

On the West and Central African coast, the positive impact of the Red Sea crisis has been less prominent and more likely resulted in increased delays and costs for the rapidly growing African trade with Asian or Middle Eastern counterparts. Major ports in Angola (Luanda), along the Gulf of Guinea in Cameroon (Douala), Nigeria (Lagos), Ghana (Tema) and Côte d'Ivoire (Abidjan), and in Senegal (Dakar) may be well endowed but are far outside traditional east-west shipping lanes around the Cape to offer cost-effective restocking and bunkering services for the diverted Red Sea traffic.

Wake-up call for port strategy

The Red Sea security situation deteriorated rapidly in late 2023 and could improve just as fast in the months ahead should international mediation finally help to secure a lasting peace deal between Israel and Hamas. The Red Sea crisis will come to an end at some point and global shipping will return to the shorter and less expensive Red Sea and Suez Canal, and bring to an end the short-term boost to port revenue from increased demand for bunkering and restocking services. However, the crisis has put African ports under the spotlight and highlighted their potential for route diversification together with their shortcomings compared with other, more advanced internationally connected ports. Even before the crisis, several African states were investing heavily in port infrastructure and services, and the spike in demand will refocus their energies on pursuing investment strategies that build intra-African and international connectivity with even more willing partners.

The analysis and forecasts featured in this video can be found in EIU's Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.

Thu, 29th Feb 2024Article tagsEconomyRiskSupply chainsMiddle East and AfricaCountry Analysis

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