East African countries are staring at a fresh rise in food and fuel prices due to the escalating conflict in the Middle East, which continues to disrupt the flow of goods through the Red Sea.
The ongoing war between Israel and the Hamas-led Palestinian militant groups in Gaza has intensified insecurity in the Red Sea, a saltwater inlet of the Indian Ocean located between Africa and Asia.
This forces ships to seek alternative but longer and more expensive routes away from the Suez Canal, a 193.30-kilometer water canal in Egypt that connects the Mediterranean to the Red Sea.
Last year, the Suez Canal Authority announced that it would increase transit fees for ships passing through the canal by 5% to 15% from January 15, 2024.
According to regional business lobby the East African Business Council (EABC), the economic impact of the Middle East conflict on the region will be “substantial”.
“We rely on the Suez Canal as our sustainable and shortest route. It means that transport and logistics costs will be high and it will also feed into the cost of imported food and energy prices which are even now extremely high,” said John Bosco Kalisa, CEO of EABC. East Africa.
“Policymakers need to find alternative transport routes to prevent businesses from the potential outcome.”
International Grains Council (IGC) estimates show that re-routing from the European Union (EU) and Black Sea countries via the Cape of Good Hope in southern Africa adds about 10 to 15 days to the journey time and about $6 to $8 per ton in transportation costs.
“We expect the turbulence in the Red Sea to continue for the foreseeable future. Firms should equip themselves for the coming wave of disputes with robust insights and strategies,” says the latest report from global risk and strategy consultancy Control Risks.
“In the short period since the disruption began, premiums have risen significantly and are expected to rise further.”
An estimated 12 percent of world trade, including 30 percent of global container volume, passes through the Red Sea.
While the waterway is still open for business, several major shipping lines – including Maersk and several major Japanese players – have announced they are suspending transit through the route and diverting to the Cape of Good Hope.
This diversion is expected to add over 6,000 kilometers to the journey to be covered.
According to the World Trade Organization’s Wheat Dashboard, a growing number of shipping vessels rerouted in January to avoid the Suez Canal amid heightened security risks, causing a nearly 40 percent year-on-year drop in wheat shipments through the Canal . about 500,000 metric tons.
An estimated 76 million metric tons of grains, oilseeds and oilseed products are shipped annually from the European Union (EU), Russia and Ukraine to Asia and East Africa, representing 17 percent of world trade in these products.
In December 2023, around eight percent of wheat shipments from the EU, Russia and Ukraine to selected Asian countries and East Africa were delivered via non-Suez Canal routes, compared to an average of 3 percent before December. In the first half of January 2024, the share of shipments using alternative routes is estimated to have increased to 42%.
EU wheat shipments via non-Suez Canal routes totaled 330,000 metric tons from early December to mid-January, compared with 50,000 metric tons in the same period in 2023.
About 190,000 metric tons of wheat have been diverted via alternative routes from Russia in the same period, compared with zero a year ago.
The Yemen-based Houthi rebels have been launching attacks on merchant ships in the Red Sea since November 2023 as evidence of their allegiance to Hamas in the ongoing Israel-Gaza conflict.
Initially, the attacks focused mainly on ships connected to Israel, but the pattern of targets has become more unpredictable.
Wheat consumption accounts for 67 percent and 38 percent of total cereal consumption in Djibouti and Sudan, respectively, while in Ethiopia, Kenya, and Somalia, wheat consumption accounts for less than 24 percent of total cereal consumption, according to the World Food Programme.
Djibouti and Somalia rely solely on imports to meet domestic wheat demand, while a significant portion of wheat demand in Kenya (86 percent) and Sudan (77 percent) is met by imports. Ethiopia is the only exception, as domestic production in 2022 accounted for 82% of total wheat consumption needs.
Ukraine and Russia produce almost a third of the world’s wheat and barley and half of the world’s sunflower oil.
In addition, Russia is among the world’s leading exporters of fertilizers and raw materials needed for production.
According to the WTO, there has been a decline in the volume of grains and oilseeds passing through the Suez Canal, with companies increasingly rerouting cargo through South Africa or other routes.
Total grain and oilseed shipments through the Suez Canal fell from 7.2 million tonnes in November 2023 to 5.9 million tonnes in December.
A bigger drop in Suez Canal transits occurred in the first half of January, with the total of about 900,000 tonnes tripling year-on-year and 63 percent below the three-year average for that period.
African countries are facing a fresh rise in food and fuel prices due to the escalating conflict in the Middle East, which continues to disrupt the flow of goods through the Red Sea.
The ongoing war between Israel and the Hamas-led Palestinian militant groups in Gaza has intensified insecurity in the Red Sea, a saltwater inlet of the Indian Ocean located between Africa and Asia.
This forces ships to seek alternative but longer and more expensive routes away from the Suez Canal, a 193.30-kilometer water canal in Egypt that connects the Mediterranean to the Red Sea.
Last year, the Suez Canal Authority (SCA) also announced that it would increase transit fees for ships passing through the canal by five percent to 15 percent from January 15, 2024.
According to regional business lobby East Africa Business Council (EABC), the economic impact of the Middle East conflict on the region will be “substantial”.
“We rely on the Suez Canal as our sustainable and shortest route. It means that transport and logistics costs will be high and will also feed into the cost of imported food and energy prices which are even now extremely high,” said John Bosco Kalisa, EABC managing director. East Africa.
“Policymakers need to find alternative transport routes in order to prevent businesses from the potential outcome.”
International Grains Council (IGC) estimates show that re-routing from the European Union (EU) and Black Sea countries via the Cape of Good Hope in southern Africa adds about 10 to 15 days to the journey time and about $6 to $8 per ton in transportation costs.
“We expect the turbulence in the Red Sea to continue for the foreseeable future. Firms should equip themselves for the coming wave of disputes with robust insights and strategies,” says the latest report from global risk and strategy consultancy Control Risks.
“In the short period since the disruption began, premiums have risen significantly and are expected to rise further.”
An estimated 12 percent of world trade, including 30 percent of global container volume, passes through the Red Sea.
While the waterway is still open for business, several major shipping lines – including Maersk and several major Japanese players – have announced they are suspending transit through the route and diverting to the Cape of Good Hope.
This diversion is expected to add over 6,000 km.
According to the World Trade Organization’s Wheat Dash Board, a growing number of shipping vessels rerouted in January to avoid the Suez Canal amid heightened security risks, causing a nearly 40 percent year-on-year drop in wheat shipments through the canal. Canal. to about 500,000 metric tons.
An estimated 76 million metric tons of grains, oilseeds and oilseed products are shipped annually from the European Union (EU), Russia and Ukraine to Asia and East Africa, representing 17 percent of world trade in these products.
In December 2023, around eight percent of wheat shipments from the EU, Russia and Ukraine to selected Asian countries and East Africa were delivered via non-Suez Canal routes, compared to an average of 3 percent before December.
In the first half of January 2024, the share of shipments using alternative routes is estimated to have increased to 42%.