Global trade drops 1.3% as Red Sea attacks disrupt shipping
Global trade dropped by 1.3% in December as the Houthi attacks on merchant ships in the Red Sea disrupted operations, new data shows.
IfW Kiel, the German economic institute, has reported that the volume of containers transported in the Red Sea has plummeted by more than half and is currently almost 70 percent below the usual volume.
According to Kiel, shipments in the Red Sea have fallen to around 200,000 containers per day, down from around 500,000 containers in November.
Instead of sailing through the Red Sea, ships are now sailing around Africa and the Cape of Good Hope, a detour that takes 7 to 20 days.
The longer journey time has significantly increased freight rates, with the transport of a 40-foot standard container between China and Northern Europe currently costing over $4,000, up from around $1,500 in November, Kiel says.
Kiel explains:
As a result, freight costs and transportation time in goods traffic between East Asia and Europe have risen and imports and exports from Germany and the EU are in some cases significantly lower than in the previous month of November 2023.
Keil reports that imports into the European Union fell by 3.1% in December, with exports 2% lower.
Julian Hinz, director of the Kiel Institute’s Trade Policy Research Center, says:
“The detour of ships due to the attacks in the Red Sea around the Cape of Good Hope in Africa means that the time it takes to transport goods between Asian production centers and European consumers is significantly extended by up to 20 days.
This is also reflected in the declining trade figures for Germany and the EU, as transported goods are now still at sea and have not already been unloaded in the ports as planned.”
Kiel’s report, titled Cargo volume in the Red Sea collapses, is online here.
Key events
In Brussels, Google’s efforts to overturn a €2.4bn antitrust fine from EU regulators have suffered a blow.
Google received the record-breaking fine in 2017 for abusing its dominance of the search engine market in building its online shopping service.
Google is appealing, and took its case to the top EU tribunal. But today, the European Court of Justice’s advocate general, Juliane Kokott, recommended rejecting the U.S. search giant’s appeal, and confirming the fine.
Kokott said:
“Google, as found by the Commission and confirmed by the General Court, was leveraging its dominant position on the market for general search services to favour its own comparison shopping service by favouring the display of its results.
Opinions by the Court of Justice’s advocate general aren’t legally binding but are often followed by its judges.
Looking back at the Red Sea, Olly Anibaba, analyst at Third Bridge, says:
The Yemeni rebel attacks in the Red Sea will see container shipping companies redirect vessels, leading to shipment delays and cost increases. This will cause disruption on the Suez Canal, a vital trading route.
Roughly 20% of world’s container shipments pass through the Suez Canal, and the current disruption is likely to impact refrigerated goods, Saudi Arabia and the automotive industry the most. Our experts believe freight rates could spike to $4,000-$6,000 per container from $1,500, although unlikely to reach the 2021 peak levels of USD 15,000.
Ripple effects such as the US port congestion (particularly on the east coast), Panama Canal bottlenecks and rate hikes on unrelated routes show no trade is isolated from the Red Sea disruption.
(Reminder: Kiel’s report today says rates have already risen to $4,000 per container for China –> Northern Europe).
UK households failing to pay energy bills jumps 39%
There has been a near-40% jump in the number of UK households failing to pay their energy bills, compared with a year ago.
More people missed mortgage payments too, as the cost of living squeeze hits homes across the country.
New data released by the Office for National Statistics shows that the total Direct Debit failure rate in December 2023 increased by 15%, when compared with the previous year
This was driven mainly by increases of 39% in the “electricity and gas” spending category and 20% in the “mortgages” category, the ONS says.
Although the UK energy price cap, which limits the maximum cost of energy, fell in October, households are still paying much more than before the energy price spike.
The price cap was lowered to £1,923 per year for a typical user in October, much higher than the £1,277 cap in October 2021.
Households also suffered because the £400 support from the government given to all homes in winter 2022-2023 is no longer available.
In a sign of the tensions in the Red Sea, an oil tanker involved in a dispute between the U.S. and Iran has been boarded by armed individuals east of Oman and appeared to be changing course towards Iranian waters.
That’s according to Reuters, which cites a British maritime security firm and the United Kingdom Maritime Trade Operations (UKMTO) authority.
Reuters says:
The security firm Ambrey said the Marshall Islands-flagged tanker’s AIS tracking system was turned off as it headed in the direction of the Iranian port of Bandar e-Jask at the time it made the report.
The ship, which loaded in the Iraqi port of Basra, and was heading to Aliaga in western Turkey, tracking data from LSEG showed.
While Ambrey did not name the vessel, shipping tracking service TankerTrackers said the vessel was the St Nikolas, which in 2023 had been seized by the United States in a sanctions enforcement operation under a different name, Suez Rajan.
Reuters adds:
UKMTO said earlier on Thursday it had received a report that a vessel located around 50 nautical miles east of Oman’s coast was boarded by four to five armed persons.
The armed intruders were reported to be wearing military style black uniforms and black masks.
Petrol pump price falls to lowest since October 2021
Despite the disruption to supplies in the Red Sea, the petrol price has hit the lowest level in over two years.
According to the AA, the average pump price of petrol has fallen below 140p a litre for the first time since mid October 2021.
Yesterday, it averaged 139.97p a litre across the UK, the AA say, the cheapest since 13 October 2021 when it averaged 139.55p.
Petrol is now more than 50p per litre cheaper than in July 2022, when it hit a record high of 191.53p.
This means it now costs £77 to fill up the average 55-litre tank, down from £105 at the peak.
Diesel prices have dropped to the lowest since early August, at an average of 147.83p.
Luke Bosdet, the AA’s spokesman on pump prices, says:
“While the dramatic improvement in pump prices gives big savings to families and businesses, and also redirects millions of pounds from fuel sales potentially back to the high street, pump prices remain historically very high. Before covid and the Ukraine war, the worst drivers faced was 142.48p record set in April 2012.”
“The danger is that current pump-price levels are baked in as the new normal.”
Bank of England fines former CEO of Wyelands Bank
The Bank of England has fined the former chief executive of Sanjeev Gupta-linked Wyelands Bank nearly £119,000 for breaching three conduct rules.
The Bank’s Prudential Regulation Authority has fined Iain Mark Hunter £118,808 for breaching three PRA Conduct Rules between 7 March 2016 and 28 May 2020.
The PRA says:
Mr Hunter failed both to act with due skill, care and diligence, and to take reasonable steps to ensure that Wyelands had adequate systems and controls in relation to the large exposures regime and PRA record keeping requirements.
This follows the public reprimand issued to Wyelands Bank by the Bank of England last April, after it discovered “wide-ranging significant regulatory failings” at the lender.
The BoE has previously warned that Wyelands had made too many loans and complex financial agreements with companies linked to its owner, Gupta Family Group Alliance (GFG).
Today, the PRA says Hunter failed to take reasonable steps to ensure that Wyelands:
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had adequate systems and controls to identify, assess and manage connected parties’ risks in relation to large exposures;
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submitted large exposures returns which properly aggregated its exposures in respect of certain transactions with connected parties;
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had a formal and appropriate document retention policy in accordance with the record keeping obligations set out in the PRA Rulebook; and
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clearly apportioned responsibility for conducting analysis of Wyelands’ connected parties before March 2019.
Wyelands is owned by steel magnate Gupta, boss of the troubled Liberty Steel which was accused of “financial engineering” in 2021.
In May 2021, the Serious Fraud Office launched an investigation into the financing of GFG Alliance, which was dragged into a crisis after the collapse of Greensill Capital that year.
AP Møller-Maersk chief warns Red Sea shipping disruption may last for months
The boss of shipping giant AP Møller-Maersk has told the Financial Times that it could take months to reopen the crucial Red Sea route to trade.
If so, that could risk creating an economic and inflationary hit to the global economy, companies, and consumers.
Vincent Clerc, Maersk’s chief executive, told the FT Times that the closure of the Red Sea to most shipping after a series of attacks was “brutal and dramatic”.
There are “no winners”, Clerc said, as vessels are forced to take a lengthy and costly detour around South Africa instead.
Clerc added:
“It’s unclear to us if we are talking about re-establishing safe passage into (the) Red Sea in a matter of days, weeks or months . . . It could potentially have quite significant consequences on global growth.”
The Kiel Institute are optimistic, though, that the tumble in Red Sea cargo volumes will only have a small impact on consumers.
And if shipping firms quickly adjust, negative outcomes could be avoided.
Kiel point out that while shipping costs from China to Northern Europe have risen (to >$4,000 per container, up from $1,5000) they are still below pandemic levels (when it hit $14,000).
Kiel’s Julian Hinz adds:
“Accordingly, despite a noticeable increase in transportation costs, no noticeable consequences for consumer prices in Europe are to be expected, especially as the proportion of freight costs in the value of goods for high-priced items, such as consumer electronics, is only in the per mille range (ie, parts per thousand).
“The situation today is not comparable to the environment during the Evergiven accident in the Suez Canal and the coronavirus pandemic, when lockdowns led to a drastic reduction in the supply of goods and demand in Europe exploded at the same time. Apart from slightly longer delivery times for products from the Far East and increased freight costs, to which the container ship network should quickly adjust, no negative consequences for global trade are to be expected.”
Global trade drops 1.3% as Red Sea attacks disrupt shipping
Global trade dropped by 1.3% in December as the Houthi attacks on merchant ships in the Red Sea disrupted operations, new data shows.
IfW Kiel, the German economic institute, has reported that the volume of containers transported in the Red Sea has plummeted by more than half and is currently almost 70 percent below the usual volume.
According to Kiel, shipments in the Red Sea have fallen to around 200,000 containers per day, down from around 500,000 containers in November.
Instead of sailing through the Red Sea, ships are now sailing around Africa and the Cape of Good Hope, a detour that takes 7 to 20 days.
The longer journey time has significantly increased freight rates, with the transport of a 40-foot standard container between China and Northern Europe currently costing over $4,000, up from around $1,500 in November, Kiel says.
Kiel explains:
As a result, freight costs and transportation time in goods traffic between East Asia and Europe have risen and imports and exports from Germany and the EU are in some cases significantly lower than in the previous month of November 2023.
Keil reports that imports into the European Union fell by 3.1% in December, with exports 2% lower.
Julian Hinz, director of the Kiel Institute’s Trade Policy Research Center, says:
“The detour of ships due to the attacks in the Red Sea around the Cape of Good Hope in Africa means that the time it takes to transport goods between Asian production centers and European consumers is significantly extended by up to 20 days.
This is also reflected in the declining trade figures for Germany and the EU, as transported goods are now still at sea and have not already been unloaded in the ports as planned.”
Kiel’s report, titled Cargo volume in the Red Sea collapses, is online here.
M&S’s CEO added that the company is expecting some slight delay in clothing and home deliveries from disruption to shipping in the Red Sea.
Stuart Machin told reporters:
“We’re expecting maybe some slight delay”.
Yesterday’s attack by Houthi rebels against warships in the Red Sea has shown that tensions in the region have not eased, despite pressure being applied to stop attacks on merchant shipping.
Happy news for M&S shoppers – the company is not planning to raise prices.
Chief executive Stuart Machin told reporters this morning that Marks & Spencer does not expect to increase clothing prices in the coming year.
Machin also said M&S’s womenswear division grew its volume and value share “significantly” ahead of the market, while food sales were up strongly (like-for-like sales grew 9.9% in the last quarter).
BBC: Fashion retailer Boohoo put ‘Made in UK’ label on clothes made in Asia
Shares in Boohoo have dropped this morning after a BBC investigation found it had mislabelled items of clothing made in South Asia as “Made in the UK”.
A Panorama investigation found the company removed the original labels on T-shirts and hoodies at the retailer’s controversial factory at Thurmaston Lane in Leicester between January and October last year.
A spokesperson from Boohoo told the BBC the mislabelling was an “isolated incident” and a result of “human error”, adding:
“We have taken steps to ensure this does not happen again.”
Boohoo is considering closing its Leicester factory and relocating operations, as reported on Tuesday.
Shares in Boohoo dropped 6% in early trading, and are now down 1.5%.
Tesco’s CEO Ken Murphy has told reporters he is “cautiously optimistic” about the British consumer in 2024.
Murphy predicted that the UK will enjoy a period of relative stability for as long as unemployment is low.
He also only expects a minimal impact to business from the disruption to shipments through the Red Sea.