Red Sea Crisis in Rare Earths Trade
In late November, Yemen’s Houthis seized the cargo ship Galaxy Leader off the Red Sea coast, triggering a series of events that have shaken the stability of the global rare earths trade — essential minerals for various technological applications. The response from the United States and United Kingdom, through joint attacks, has raised oil prices by 4%, causing additional concern over the economic and logistical impact of the Red Sea crisis and the Suez Canal.
The rise in oil prices, reaching $80 per barrel, poses inflation risks just as the global economy was experiencing a slowdown. Moreover, the disruption of international trade through the Red Sea and Suez Canal is affecting container shipping costs, which have tripled on some routes. This situation could lead companies to pass these additional costs onto consumers, reigniting concerns similar to those caused by the 2021 Suez Canal crisis.
The world’s largest shipping lines have responded by halting shipments through the Red Sea, opting to divert container transport around the Cape of Good Hope, adding thousands of kilometers to journeys, increasing costs, and delaying deliveries of vital manufacturing components and consumer goods.
A wide range of products containing rare earths, such as electronics, food, clothing, furniture, oil, and liquefied natural gas, typically travel through the waters connecting Africa and the Arabian Peninsula en route to the Suez Canal. This canal facilitates between 12% and 15% of global trade. Leading companies including Tesla, Ikea, Walmart, and Amazon are facing delays in the arrival of essential products, such as rare earth magnets crucial in the manufacture of technological products.
The crisis in the Red Sea has not only affected maritime transport but has also dramatically increased container shipping costs on critical routes, with increases of up to 199% in the price of moving a container from East Asia to Northern Europe. The lack of direct routes has led to even greater challenges in global maritime transport, which is simultaneously dealing with the Red Sea crisis and water shortages in the Panama Canal.
The duration of the Red Sea crisis will determine the economic impact on global supply chains. As the Chinese New Year approaches on February 10, a period of high commercial flow, some congestion at ports is likely due to delays in vessel flow. Despite the difficulties, analysts like Peter Sand from Xeneta state that shipping companies are better positioned to handle this crisis compared to the Ever Given’s blockage of the Suez Canal in 2021.