Maersk CEO Expects Houthi Terrorism in Red Sea Will Continue

Vincent Clerc, CEO of Danish shipping giant Maersk, informed his customers that he expects Iran-backed Houthi terrorism to continue disrupting Red Sea shipping into the third quarter of 2024, and perhaps beyond.

“The longer that this lasts, the more our costs will get deeply ingrained. We don’t know yet exactly how much of these costs we will recover and for how long. The higher rates we are seeing right now are of a temporary nature,” said Clerc, as quoted in a statement from Maersk on Monday.

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“While we continue to hope for a sustainable resolution in the near-future, the situation in the area is constantly evolving and remains highly volatile. All available intelligence at hand confirms that the security risk continues to be at a significantly elevated level, and therefore has potential impact on your logistics operations,” the company said in its latest bulletin on the Red Sea situation.

Armed and financed by Iran, the Houthi insurgency in Yemen began attacking commercial vessels in the Red Sea shortly after the beginning of the Gaza war. The Houthis said they would attack American, British, and Israeli ships to pressure Israel to end its military offensive against Hamas in Gaza, while promising safe passage to Iran and its allies Russia and China. They often target ships outside of these parameters, however.

President Joe Biden announced a U.S.-led international initiative to combat Houthi piracy and terrorism in December 2023: “Operation Prosperity Guardian.” The shipping industry expressed little confidence in Biden’s effort, and Houthi attacks continued with only a brief operational pause. If anything, the Houthis seem to be getting better at sinking ships.

In his remarks to customers, Clerc said his company’s pleas to the U.S. and European governments for improved Red Sea security have been “unsuccessful.”

“In some regions like Europe governments need to understand the possibility that this will reignite inflation,” he warned.

Clerc said that Maersk will only resume sailing through the Red Sea and Gulf of Aden when the safety of its ships and crews can be guaranteed. Until then, he pledged to do everything possible to provide shipping capacity via alternate routes, but he warned costs would increase and cargo space would be more limited.

“With no ‘crystal ball’ to tell how long the situation will last, Maersk is working to alleviate the impact of the disruptions. This includes doing whatever it reasonably can to bring supply in line with businesses’ demand for capacity,” he said.

“The availability of additional capacity was low to begin with and, across the industry, carriers’ ability to bring in extra tonnage has been limited. At the same time, demand for container transport has remained strong,” he said.

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Clerc explained that the longer alternate route around Africa essentially requires shipping lines to deploy three vessels to do the work of a single ship following the more efficient Red Sea route.

“We are going to have in the coming month missing positions or ships that are sailing that are significantly different size from what we normally would have on that string, which will also imply reduced ability for us to carry all the demand that there is,” he cautioned.

Clerc commiserated with his customers, saying Maersk knows the situation is “difficult for you” and “puts you under a lot of pressure.”

“Nobody has the supply chain of their customers more at heart than Maersk. It doesn’t mean that we can insulate you from problems, but I can tell you that you are in the best possible hands, even if right now it’s some difficult conversations that you’re having,” he said.

“We are truly taking into consideration the amount of trust that you’re putting into us and we’ll won’t stop at anything to try to do the best that we can to help you,” he pledged.

Other shipping companies and industry groups have urged the international community to end Houthi terrorism in the Red Sea, intensifying their calls after Houthi attacks began sinking ships instead of merely damaging them.

“It is deplorable that innocent seafarers are being attacked while simply performing their jobs, vital jobs which keep the world warm, fed, and clothed,” a coalition of shipping associations said in a mid-June statement.

“This is an unacceptable situation, and these attacks must stop now. We call for States with influence in the region to safeguard our innocent seafarers and for the swift de-escalation of the situation in the Red Sea. We have heard the condemnation and appreciate the words of support, but we urgently seek action to stop the unlawful attacks on these vital workers and this vital industry,” the statement said.

Industry analysts told Foreign Policy on Monday that Western navies underestimated the Houthi threat, seeming surprised that attacks have intensified despite joint naval patrols and U.S.-British airstrikes on Houthi coastal positions.

“The Houthis have proven to be quite the formidable force. This is a nonstate actor that fields a larger arsenal and is really able to give a headache to the Western coalition,” said naval expert Sebastian Bruns of the Center for Maritime Strategy and Security and the Institute for Security Policy.

“This is as high-end as it gets for now, and when navies are having a problem with sustainment at this level, it is really worrisome,” Bruns said.

S&P Global Market Intelligence researcher Chris Rogers noted that even if the Houthi attacks halted tomorrow, the “bullwhip effect” from increased shipping times, reduced cargo capacity, and soaring container costs could “take six months to a year to play out.”