Oman maritime trade sees minimal disruption from ongoing Red Sea attacks: CBO
Global economic environment has remained challenging due to a slowdown in trade activity
Oman maritime trade saw minimal disruption from ongoing attacks on shipping vessels moving through the Red Sea, according to the annual report issued by the Oman's Central Bank (CBO).
The report flagged that the attacks on shipping vessels moving through the Red Sea since the beginning of 2024 rose expectations of related impact on Oman’s maritime trade, particularly on account of the proximity of the ports to the events, which further warrants further attention toward the developments in the region.
"The global economic environment has remained challenging due to a slowdown in trade activity exacerbated by increased geopolitical tensions in the Middle East, stemming from attacks on shipping vessels moving through the Red Sea," the report said.
The global economic environment has remained challenging since Q1 2022, characterised by a series of economic and political events that have led to a slowdown in trade activity. This slowdown is exacerbated by increased geopolitical tensions in the Middle East," the report added.
However, Oman’s trade continued to maintain a positive growth trajectory. At its peak, the Red Sea facilitated the movement of 30 per cent of global container traffic and maritime trade. It is the shortest maritime route between Asia and Europe.
The ongoing geopolitical tension in 2024, has forced shipping companies to use an alternate route to Africa around the Cape of Good Hope that resulted in an increase in shipping costs globally Daily Transit Trade Volume
The expected disruption period of trade in the Red Sea is yet unknown, linked to multiple geopolitical factors that were provoked by the war on Gaza, according to the report.
"Attempts to resolve the disruptions up to the first half of 2024 have been unsuccessful, and sentiment reflects uncertainty on how long further the disruption of shipping through the Red Sea will be prolonged.
This has contributed to spikes in cargo shipping reaching fourfold higher than pre-disruption costs to above $5,500 per 40-foot container
Nevertheless, prices remain below levels seen during the Covid-19 pandemic.
Meanwhile, the ongoing ripple effects of Red Sea attacks global trade disruption has impacted shipping firms and retail sector.
Shipping firms stand to gain in terms of profitability as container rates have risen and firms are diverting ships from the Red Sea to the Cape of Good Hope.
Previous excess capacity of ships is also expected to be reduced, to serve increased demand for shipping because of longer routes. These risks further upward supply side pressure on future shipping prices and vessel availability shall the disturbances continue.
Furthermore, retailers are among the most impacted. For example, freight represents a significant share of costs for fashion retailers and consumption goods. There is a risk of upward pressure on Inflation levels because of the rising shipping costs.
Every round trip between Asia and Europe through the Cape of Good Hope that involves rerouting ships is predicted to incur additional fuel expenses of up to $1 million.
The cost of insurance is also expected to rise, increasing the total cost of shipments. This could rekindle inflation concerns as a result. Initial reports from countries in Europe and the Middle East indicate a slowdown in import growth early 2024 likely due to delayed shipments.
However, Oman’s official merchandise trade data indicates that trade has been affected to a lesser extent. Customs trade figures reflect strong growth in the value of trade activity. Imports, non-oil exports and re-exports increased by 7.2 percent, 16.3 percent and 22.0 percent in the first 4 months of 2024 compared to the same period in 2023.
The ramping of operations in Duqm refinery significantly contributed higher Mineral Products exports representing 69 per cent of the increase till April 2024. Additionally, higher insurance and freight costs are driving up the value of international trade. Moreover, the majority of trade by sea occurring is with GCC neighbors and towards the east.
The ongoing missile and drone attacks in the Red Sea since October by Yemen's Houthi militants, who say they are acting in solidarity with Palestinians in the Gaza war, have forced many ocean freight firms to reroute vessels away from the Suez Canal to around the Cape of Good Hope on the southern tip of Africa.