Global shipping is fracturing and the new year is off to a chaotic start.
On New Year’s Eve a rebel group from Yemen known as the Houthis attacked a Maersk container ship in the Red Sea. In response, the US destroyer USS Gravely intervened and engaged several Houthi small boats in naval combat.
This event was an escalation of previous skirmishes in the Red Sea. The Houthis have been attacking ships they believe to be in route to Israel since last November. They made it clear that any cargo ships traversing the sea are at risk.
This has already impacted global shipping tremendously. To understand why, we have to look at the geography:
The Red Sea is that narrow strip of water separating Africa from the Middle East. It also connects to the Suez Canal, which provides direct access to the Mediterranean Sea.
So the Red Sea is critically important when it comes to global trade. Roughly 15% of all trade moves through it. And around 10% of the world’s oil and liquefied natural gas (LNG) moved by ship flows through the Red Sea – most of that heading for Europe.
At least it did previously.
With the Houthis disrupting shipping routes in the Red Sea, Maersk suspended all cargo movements through the Suez Canal until further notice. And 262 container ships have already rerouted around the Cape of Good Hope, which is located at the southern tip of Africa.
So all those shipments into Europe that previously entered the Mediterranean through the Suez Canal must now sail all the way around Africa to get to their final location.
That’s added enormous expense – up to $1 million in extra fuel costs for every round trip. And of course it’s causing dramatic delays as well.
No surprise, rates for shipping containers have skyrocketed. The cost to ship from China to Europe is up 80% just this week. And if the disruptions continue, we’ll almost certainly see oil prices spike as well.
But there’s a less tangible effect at work here also…
Trust is collapsing around the world. We’re seeing signs that the established order of the last several decades is splintering.
That means major changes are coming fast… and they will impact everything about money, investing, and retirement planning.
Are you positioned for what’s to come?
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-Joe Withrow