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Ships Diverted From Red Sea Send Ripple Effects Across Globe
The conflict in the Red Sea is causing economic fallout as ships are forced to sail around Africa's Cape of Good Hope, clogging major Asian ports and creating shortages of empty containers. The blame for trade turmoil is on several factors, including solid demand for goods in the U.S., but the latest bout of trade turmoil largely stems from the Red Sea diversions. The ricochet effect of ships circling back to Asia is contributing to bottlenecks in ports like China's Shanghai-Ningbo and Singapore. The situation is expected to worsen due to the increase in off-schedule vessel arrivals and very high yard utilization. Delivery times are particularly slow for goods traveling to Europe and the U.S. East Coast from China, as most of the ships on these routes are avoiding the shortcut through the Suez Canal. The supply-demand imbalance is happening at least a month before peak shipping season from July to September. Spot shipping rates have responded by going up sharply. A much costlier mode of transportation, air cargo, is also seeing the effects on specific routes as demand increases. Just how long it will take for the interconnected system to return to balance is anyone's guess.
