Misguided Missiles

I’ve received several inquiries from journalists asking my thoughts about how the attacks on commercial ships off the coast of Yemen are likely to affect trade and shipping. There’s no question that the unfriendly fire of the Houthis and their Iranian sponsors since November 19, when black-clad fighters carrying automatic weapons dropped from a helicopter onto the deck of a car-carrying vessel in the Red Sea, is outrageous. But for the world economy, the disruption of shipping as carriers avoid the Red Sea and the Suez Canal is an inconvenience, not a catastrophe.

Some people seem to associate the current goings-on with the supply-chain chaos during the COVID-19 pandemic. Then, port closures, crew shortages, and delays moving cargo into and out of container terminals led to hundreds of sailings being cancelled at a time when demand for manufactured goods was unexpectedly strong. At one point, more than 500 container ships were queuing outside harbors on three continents to load or discharge. Freight rates reached the stratosphere. Manufacturers and retailers had no idea where their goods were or when they might be delivered.

Conditions today are quite different. Before November 19, the cost of shipping a 40-foot box had tumbled to the lowest level in four years and a record level of shipbuilding portended excess capacity well into the future. The Houthis’ attacks have led many carriers to sail around Africa, lengthening the trip between Shanghai and Rotterdam by eight days to three weeks, depending on how fast the carrier wants to steam. The longer voyage times have sopped up excess capacity, restoring the pricing power container carriers lost with the end of the pandemic. They must pay more for fuel, wages, and mortgage or lease payments on each trip, but save by avoiding Suez Canal tolls. Higher ocean freight costs will likely be reflected modestly in consumer prices, but they are not likely to turbocharge inflation.

Although ocean transport is taking longer than it did before the Houthis took aim at merchant shipping, the impact of those delays is related mainly to private companies’ decisions about how to structure their supply chains. That’s why I find it troubling that the United States and several other countries claim to be attacking Houthi fighters and weapons systems “to defend lives and the free flow of commerce.” When we read that shipping delays have led to retailers lacking goods to sell and an auto assembly line closing for want of parts, we should remember that companies, not governments, determine where to obtain inputs and how much inventory to hold in the warehouse. Some companies work harder than others to make their supply chains resilient. Protecting those that have chosen to accept greater risk of supply-chain disruption is not a good reason to shoot missiles at Yemen.


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