Ertan Özgen
CEO / Pakun

“The Red Sea crisis poses significant risks, but it also brings opportunities for Turkey. As the primary supplier to the East African countries most impacted by the crisis, Turkey occupies a crucial position. With a robust logistics infrastructure and a strong presence in container shipping in the region, Turkey can turn the Red Sea crisis into an opportunity. It is crucial for Turkey to showcase its logistical strength in the region and pursue new investments as a response to the crisis.”

Following the attacks by the Houthi rebels in Yemen on ships passing through the Suez Canal in response to Israel’s Gaza strikes, trade in the Red Sea has come to a standstill. Concerns are rising about the crisis leading to a new supply chain disruption in the global economy. Swift actions from Turkish diplomacy and new investments are imperative to address the crisis that jeopardizes import and export networks.

The Houthi attacks pose a substantial risk to the Suez Canal, the shortest route connecting the Mediterranean to the Red Sea, responsible for nearly 12% of global trade. Due to the attacks, one-third of the container traffic in the Red Sea has come to a halt. The sea route to the Mediterranean and the Black Sea currently takes 15-20 days, and the journey to Europe has increased by 15 days. The increased costs are burdening international trade companies. Given the corridor’s potential, Turkey should promptly demonstrate its logistical strength in the region and facilitate new investments. The Modern Silk Road project, in which Turkey is involved, is vital for the sustainability of the Asia to Northern Europe trade corridor. 

Orders started to be cancelled

The rise in container prices and delivery times is causing significant problems for both importers and exporters. Some suppliers are requesting additional time in contracts, while others want to cancel. This situation is unsustainable for exporters, who are the driving force of the Turkish economy. From the perspective of imports, the risks are more significant than anticipated. For products like wheat flour that we export, there is a considerable dependence on imports. Transportation costs have surpassed the product’s own price, disrupting the supply-demand balance. The redirection of routes by international container shipping companies from the Bab-el-Mandeb Strait to the Cape of Good Hope has extended the journey by 7 to 10 days. The inability to find suitable containers adds to the challenges. The lengthening of waiting times is causing significant difficulties in the trade of time-sensitive products such as food. Considering all these factors, we are beginning to lose our competitive price advantage in global trade. The process seems to be at risk for Turkey, which has held the championship in global flour exports for 9 years. Immediate measures are needed to prevent price increases and supply crises.

In addition to the 5% contraction in global trade in 2023, corridor crises have increased costs. Long-term mandatory route changes may be encountered. Cost-effective routes will be preferred. The Caspian Transit East-West Corridor project, connecting Turkey to the Caspian Sea via the Caspian Sea, Turkmenistan, and Kazakhstan to China, is the modern version of the Silk Road today. It is essential to remember the significant potential of this route.

Rising container prices and freight costs

Ships originating from East Asian countries, unable to pass through the Red Sea, are forced to circumnavigate the entire African continent to reach the Cape of Good Hope. Since the start of the crisis, freight prices have increased, and container indices have risen by over 15% in the past week. This situation has once again made logistics a challenging area. Some shipowners have suspended services, especially in the East African region, where there is high demand for wheat exports. It is evident that East Asian countries will face difficulties in exporting to the European market. Despite price increases and intensive measures in container shipping, some flexibility is beginning to emerge. However, it is predicted that the tension in the region will persist for an extended period. Turkey is the largest supplier in the region and should seize the opportunity arising from the potential loss of competitiveness by East Asia.

The Ever Given crisis, an example of severity

The crisis, reaching its peak with the Houthi attacks on ships entering the Red Sea, will have a significant impact on global trade. Leading container and shipping companies have announced that they will not use the Red Sea route until security is guaranteed. There is a substantial example to understand the extent of the danger. In March 2021, the crisis occurred when the 400-meter-long and 59-meter-wide giant ship ‘Ever Given’ ran aground in the Suez Canal, blocking two-way traffic for six days. The closure of the canal for a week resulted in daily losses of approximately $10 billion in global trade. The Ever Given crisis remains a clear example with all its consequences. Our country needs to take the necessary precautions for this new crisis and start working on initiatives to turn the crisis into an opportunity as soon as possible.

I anticipate that the crisis will last at least three months. During this period, it is crucial to closely monitor the policies of major players like Russia dominating the global grain market. Container prices have suddenly jumped from $800 to $1800. In countries like Turkey, which import wheat, trade slowing down due to the crisis is inevitable. With reduced demand in the market, we may see a downward trend in wheat prices in the long run. 

Turkey should play its local shipowner card

Transportation to many global destinations, including the African market, is carried out with foreign-owned shipowners. This situation makes our trade dependent on external factors in regional and global crisis situations, both in terms of freight prices and service. The entry of new local shipowners who operate container shipping at both domestic and global levels would be Turkey’s most critical card for exports. Such an initiative would make Turkey a significant force in terms of both price and service in many markets. On the other hand, the intense infrastructure investments of China, the United States, and Russia in Africa are noteworthy in recent times. As a country with significant export capacity, it is vital for Turkey to meticulously establish its logistics network with local companies in this region and make essential investments such as free zone port facilities.

Turkey’s share in global flour trade is increasing every year. The International Grains Council (IGC) predicts that due to the increase in our exports, the figures have been revised upward, stating that wheat shipments will reach 14.7 million tons in 2024. Turkey, the world’s largest flour exporter, maintaining global leadership, is crucial.

Possible increase in energy prices

Ensuring the security of traffic in the Strait, where about one-fifth of the world’s oil consumption passes, is also crucial for stability in energy prices. Without taking precautions, this situation can lead to economic stagnation on a global scale. Shipping, insurance, production costs, and fuel prices have entered an upward trend. This situation will lead to an increase in global commodity prices, particularly in oil and gas.

The Bab-el-Mandeb Strait, under the threat of the Houthis, connects the Red Sea to the Indian Ocean. The strait, with its narrowest point being 32 km wide, sees approximately 33,000 ships pass through it each year. A significant portion of these ships consists of tankers carrying the petroleum of the Gulf countries. About two-thirds of the crude oil coming from the Persian Gulf, including approximately 10% of global oil trade and 8% of liquefied gas trade, passes through the Suez Canal. Approximately 30% of the world’s shipping containers reach the market through the 193-kilometer-long Suez Canal every day.