Fortune News | Sep 16,2023
The usually steady flow of global shipping has been disrupted, sending shockwaves through Ethiopia’s import and export sectors. As armed militias target international shipping vessels in the Red Sea, a critical maritime route, the trading community here is gripped by worries about unforeseen logistical hurdles.
The situation, largely unaddressed by executives of the state-owned Ethiopian Shipping Logistics (ESL), leaves the import-export sector in a state of unease and uncertainty.
Beriso Amalo (PhD), CEO of ESL, has maintained a position of apparent detachment, claiming that the shipping company remains unaffected by the turbulence disrupting major international maritime operators.
"Not yet," said Beriso.
However, this claim contrasts the reality faced by several logistics companies.
The recent surge of attacks by the Houthi militias from Yemen has caused significant disruptions in shipping routes through the Red Sea. The route, which includes the critical passage of Bab al-Mendeb, spanning a mere 30km between Djibouti and Yemen, is now a hotspot of geopolitical tension. In one day on December 18, 2023, the Houthi militias attacked vessels, pledging support to Palestinians under siege in Gaza.
This has led to a notable redirection of shipping traffic, with vessels being rerouted to the Mediterranean and other safer waters, causing delays and heightened concerns about the safety of crew and cargo. The significance of the Red Sea corridor in global shipping cannot be overstated.
According to Clarkson, a leading shipbroker, nearly 24,000 vessels have traversed the Suez Canal this year, representing about 10pc of the global share of shipping logistics. This includes 20pc of container traffic, 10pc of oil, and eight percent of liquefied natural gas (LPG). The disruption of this vital artery thus has far-reaching implications.
Maersk, a global shipping giant and a long-standing business partner of ESL, has observed an uptick in its share prices as it navigates these troubled waters. Daniel Zemikael, general manager of Global Shipping Plc, Maersk’s agent in Ethiopia, has voiced the need for prompt and decisive action, citing safety concerns for crew and cargo. A Maersk vessel carrying approximately 300 containers bound for Ethiopia is currently docked near the Mediterranean, awaiting safer passage.
"The attack has impacted navigation of vessels," he told Fortune.
The company rents slots for up to 20,000 containers annually for shipments bound for Ethiopia, with at least one vessel arriving weekly. Daniel fears the disruption poses a logistical and financial burden.
"We're weighing out options," he indicated.
Despite the durability of pulses and sesame, which can be stockpiled for up to two years, Sisay worries about the financial strain on exporters due to the tied-up working capital. The situation is further compounded by the commodities often serving as components of the export proceedings.
Rerouting vessels to Cape of Good Hope, South Africa, adds 10 days to the arrival time of shipments, adding cost to the 1,500 dollars fee for a container. The crisis comes at a time when the shipping industry was beginning to recover from the impacts of the global pandemic. A surge in demand and a spike in container fees of up to 10,000 dollars led to a robust profit of 215 billion Br last year, a pleasant turnaround from a cumulative loss of 8.5 billion dollars over the three years beginning in 2016.
Despite the industry's recent growth, the situation in the Red Sea demands a rethink of operational strategies.
ESL, a subsidiary of the Ethiopian Investment Holding (EIH), a sovereign wealth fund, manages a fleet of 11 vessels and engages in various leasing and chartering arrangements with leading shipping companies like Mediterranean Shipping Company (MSC), Evergreen Marine, and Maersk Line. Responding to the current crisis, Denmark's Maersk has announced the implementation of a Transit Disruption Surcharge (TDS) on 27 trade routes, along with an Emergency Contingency Surcharge (ECS), blaming the heightened risks and difficulties of navigating through the Red Sea.
The ripple effect of these disruptions is palpable across Ethiopia's trading sector.
The Ethiopian Pulses Oil Seeds & Spices Processors & Exporters Association has reported significant shipment delays destined for Europe and Israel. Sisay Asmare, the president of the Association, expressed his deep concern about the stagnation of critical export shipments of pulses and oil seeds representing a significant portion of trade with Europe and Israel.
The coffee sector, another pillar of the economy, is also feeling the strain. Nearly 40pc of coffee exports are destined for European markets. Gizat Worku, general manager of the Ethiopian Coffee Exporters Association, acknowledges a general decline in exports, attributing it not solely to the Red Sea crisis but fearing that a prolonged blockade could severely impact the industry, particularly in the wake of the recent European Union initiative targeting products linked to deforestation.
"We don't have any other options but to wait," Sisay said.
The situation is equally dire for those in the import sector. Importers like Gelana Deme, who has been importing generators and water pumps for over a decade, face uncertain timelines and the prospect of mounting costs due to delayed deliveries and additional service charges. The apprehension is apparent among importers as they brace for potential financial hits, with some, like Gelana, anticipating interest fees of up to nine percent for extensions on letters of credit.
"I'm anxious over additional service charges and delayed deliveries," he told Fortune.
For Arega Shumete, an economist, the broader implications of these disruptions would be distressing. He says that people are already battling high inflation and could face further pressure as supply chain disruptions add to the rising cost of living. Industries reliant on imported inputs might find themselves in an increasingly precarious position, while the demand for agricultural exports could diminish, straining the economy.
The economist worries that the potential delay in fuel shipments from Middle Eastern countries is a particularly troubling prospect, given its potential to bottleneck various sectors and exacerbate an already demanding situation.
For some logistics sector experts, the Red Sea crisis is a stark reminder of the vulnerabilities inherent in global trade networks. The current situation poses significant risks for a country whose economic life is closely tied to these networks, according to supply and logistics expert Matewos Ensermu (PhD). He warns of a potential Covid-like disruption in supply chains if the crisis is not swiftly resolved.
Industry insiders disclosed to Fortune that federal officials have reportedly formed a committee to explore alternative strategies in response to this unfolding crisis. However, the Ethiopian Maritime Authority remains tight-lipped, with officials such as Getinet Abay, a Maritime Administration and nautical advisor, preferring to keep the issue out of the media spotlight.
"We don't want the issue to become a media folder," Getinet told Fortune.
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