How Global Shippers Are Dealing With a Worsening Red Sea Crisis

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, I think we have to talk more about the disruptions in the Red Sea. We sort of hit on them briefly with Craig Fuller a couple of weeks ago, but they've escalated. They're not going away. There's been a military response, but so far, the tension and strikes continued ongoing, and it's becoming a bigger issue.

Tracy Alloway (0:35)

Yeah, I think there have been dozens of attacks at this point, and there have been people who are having to make hard decisions about whether or not to continue going through the Suez Canal, which is of course this waterway that is incredibly important for global trade. Just before we came on the show, I was reading a figure saying something like, the Suez Canal handles 12 to 15% of global trade, at least in 2023 So when we say a chunk of global trade has been affected, we do actually mean a significant chunk.

Joe Weisenthal (1:07)

A significant chunk. And we've all seen, I guess, those maps of ships being rerouted around the southern coast of Africa, the Horn of Africa.

My understanding, I think there's been reports it started as just container ships, but it's been affecting other things. So it's starting to perhaps affect the oil trade and so forth.

And look, maybe the attacks will go away. Maybe they can be stopped. I don't know. But I mean, I do think, you know, it's pretty striking that a fairly small military group is able to create such a big disruption. And there is no obvious solution from the biggest military power in the world, that being the US obviously.

Tracy Alloway (1:47)

Right. And there is this overarching question of whether or not the US should be involved. And I think we're seeing some other governments, notably in Europe, start to make more noise about this as well. So yes, there is a sort of political aspect to this as well.

Joe Weisenthal (2:02)

Well, let's get right into it. We really do have the perfect guest. We are gonna be speaking with Sal Mercogliano. He is a maritime historian at Campbell University.

He is the host of the YouTube show What's Going On With Shipping. And sometimes he has been a tracker, Tracy, of your own furniture.

The last time, I think the only time we've spoken to him in the past, it was when your furniture was stuck. What was the ship? The Ever Forward? The one?

Tracy Alloway (2:30)

I think it was the Ever Forward, yeah.

Joe Weisenthal (2:31)

When your furniture was stuck on the Ever Forward, I guess that was in 2021, we turned to Sale. And now, of course, this is a much more severe disruption. We're gonna have Sale back. So Sale, thank you so much for coming back on Odd Lots.

Sal Mercogliano (2:44)

Thank you for having me.

Joe Weisenthal (2:45)

Let's just start really big picture with how extraordinary and unusual is the scale of this disruption happening right now?

Sal Mercogliano (2:55)

You're looking at about 11% of the world's trade goes through this vital maritime choke point, the Bab el-Mandab. This is the Gate of Tears.

This is the very southern end of the Red Sea. This is the connection between Europe and Asia, but it's much more than that. You're looking at trade that goes not just between those two areas, but actually kind of like a hub and spoke system, kind of radiates out around the planet.

And this attack by the Huthi, which started off very small scale, you saw a helicopter assault onto a ship, the Galaxy leader back on November 19th has now escalated. And what we've seen is not just container ships that have started to divert around, but now liquefied natural gas carriers, liquefied petroleum gas carriers, tankers, and even bulk vessels are now moving around. And as you mentioned, this adds 3,500 miles. But the biggest thing is it creates massive delays and disruptions. And for the Huthi, which are a small player, one part in a three-way civil war in Yemen, they have created more disruption of global trade than you almost have to go back to the World Wars to find something similar to this.

Tracy Alloway (4:06)

So Sal, you mentioned that the Huthis have sort of expanded their repertoire of attacks, I suppose, to now include LNG and bulk vessels and things like that.

What is their strategy here and how has it evolved over time? Because we have seen an escalation since November, but there were sort of isolated attacks happening before then. So what is changing here?