US-led forces in Red Sea will be defensive ‘highway patrol’

The longer container lines detour from the Red Sea around the Cape of Good Hope, the more vessel capacity will be soaked up, and the higher freight rates will go. Rates are already rebounding. New surcharges just announced by ocean carriers imply freight costs are headed higher still.

Container lines have a perfectly valid reason to avoid going through the Bab-el-Mandeb Strait from a corporate governance perspective: They cannot guarantee the safety of their seafarers, ships or cargo due to indiscriminate attacks by Yemen’s Houthi rebels.

From a bottom-line perspective, the timing couldn’t be better. The Red Sea-driven rate rise coincides with annual contract negotiations for Asia-Europe service that renew Jan. 1.

If disruptions extend for months, not weeks, they will impact negotiations for Asia-U.S. annual contracts that renew May 1. Numerous Asia-East Coast services that previously transited the Panama Canal switched to the Red Sea/Suez Canal route due to drought-induced restrictions in Panama.

The U.S. and its allies have unveiled Operation Prosperity Guardian in an attempt to convince shipping lines it’s safe to come back to the Red Sea, a move some analysts initially thought would bring a swift resolution, minimizing container rate upside.

But a press conference by Defense Department spokesman Maj. Gen. Patrick Ryder on Thursday (transcript here) offered little guarantee that disruptions will end soon — unless civil-war-hardened Houthis are easily cowed by tough talk.