Recent attacks on ships transiting the Red Sea have raised security concerns and caused major shipping companies to halt routes through the area. This could significantly impact Pakistan’s economy given its reliance on maritime trade.
The Red Sea is a vital commercial waterway, providing access from Asia to Europe via the Suez Canal. Around 12% of global trade worth over $1 trillion passes through this narrow stretch of water bordered by Yemen and East Africa each year. However, the ongoing conflict in Yemen has led Houthi rebels to conduct over 150 missile and drone strikes on vessels since 2016.
Major carriers like AP Moller-Maersk, Hapag Lloyd and CMA CGM have now suspended routes through the southern Red Sea to avoid further attacks. These 3 companies alone control around 30% of global container shipping capacity. Their actions could have ripple effects across supply chains.
This may directly affect Pakistan – over 95% of the country’s $95 billion in annual international trade volume is handled by sea. Key imports like oil, machinery and chemicals arrive at Pakistan’s ports after traversing the Red Sea. In 2021, Pakistan imported $23 billion of refined petroleum by sea. Export industries like textiles also rely on unhindered maritime trade networks to sustain the $32 billion in overseas sales last year.
Shipping analysts warn that alternate routes around the Cape of Good Hope can add 1-2 weeks of transit time. Such delays can disrupt just-in-time inventory practices and raise delivery costs due to higher fuel consumption. Expert estimates indicate freight rates could rise by 15-20% on average if ships are rerouted. Pakistani importers and exporters will struggle to absorb these additional charges estimated to cost billions of dollars.
So policymakers need to closely monitor developments and prepare contingency plans to protect Pakistan’s economy if global trade flows are substantively affected. Support measures for trade-oriented industries may also become necessary.
