Trade logistics are set to become increasingly challenging for Australia’s agricultural sector with the escalating tensions in the Red Sea disrupting global trade, according to agribusiness banking specialist Rabobank.
However, there are also potential upsides for the nation’s wheat and barley exports, the bank said.
RaboResearch general manager Stefan Vogel said as ocean shipping companies divert more vessels away from the Suez Canal to avoid attacks by Houthi militants and the escalating military action against them in the Red Sea, Australian canola exports may be particularly impacted as the bulk of these are destined for the EU and normally shipped through the canal.
Australia may also have to deal with some increased costs for imported goods – such as certain fertilisers, ag chemicals and machinery parts – as importers face higher freight costs, as a result of diverting around the canal and impacted areas. However, the elevated freight costs are not expected to reach the Covid-related highs seen in 2021, Mr Vogel said.
“Globally, for containerised and bulk goods, the shipping industry has to make tough decisions at the moment – either to navigate the Suez Canal and risk severe attacks by Iran-backed Houthi rebels or to take a nine to 15-day detour around Africa’s Cape of Good Hope,” he said.
Mr Vogel said initial attacks by the Houthi on cargo ships had seen bulk freight rates spike in December, though these had now settled back closer to 2023 average prices.
For Australian canola exports, shipments to “our prime markets in Europe are likely to get more complicated and expensive”, he said, “as they do usually pass through the Suez Canal, while canola shipments to the EU from our competitors in Ukraine and Canada do not”.
Conversely, Mr Vogel said “the canal issues might help Australian wheat and barley shipments to be slightly more competitive into destination markets in Asia, the Middle East and eastern Africa”.
“This is because our key competitors from Russia, Ukraine, the EU and even the east coast of the US will struggle to get to these destinations as they usually pass through the Suez Canal, while Australian grain does not,” he said.
The impact of the Suez/Red Sea crisis on agricultural fertiliser and other farm input imports is likely to be mixed, Mr Vogel said.
“Fertilisers used on farm in Australia are largely imported in bulk. And, at least for nitrogen and phosphate fertiliser supplies, they should not be impacted much as they mostly derive from Asia and the Middle East and don’t pass through the Suez Canal,” he said.
“Potash, however, largely comes to Australia from North America and Europe and some of those shipments could be impacted by the attacks and re-routing of vessels.”
Containerised shipments – both to and from Australia – will also be affected, Mr Vogel said.
“And this is likely to have time and cost impacts on plant protection chemicals and machinery parts coming into Australia as well as Australian meat and fresh produce exports,” he said.
“During the 2021 freight crisis, Australia struggled to find sufficient containers for exports as shipping companies gave preference to their major global routes and somewhat neglected Oceania or they tried to quickly take empty containers back from Australia to China rather than adding in shipping time to export Australian goods. A similar struggle for containers is not unlikely to materialise again if the Red Sea struggles tighten global container freight capacity further.”
The FBX global ocean freight container index has more than doubled from early December to mid-January to reach the highest price level seen since October 2022, Rabobank said.
“The good news is container freight rates at the moment are still three to four times below the massively Covid-inflated levels of 2021,” Mr Vogel said.
“Imported goods into Australia will have to bear the higher freight costs, but container freight is unlikely to get as expensive as in 2021.”
RaboResearch global economic strategist Michael Every said while “things aren’t as bad as the last shipping crisis, they could still get painful if the Suez/Red Sea crisis is not resolved soon”.
And total container transits and tonnage via the Suez Canal have now slumped to Covid-era lows, he said.
“Helpfully, ocean carriers have added 11 per cent container ship dead weight tonnage capacity since Covid,” Mr Every said.
More broadly though, he said, the current “Red Sea/Suez crisis, on top of the ongoing Black Sea/Ukraine crisis and the risk of others to follow, provides a fat tail risk of potential fresh waves of inflationary supply shocks for western economies and financial markets, which are currently predicting nothing but easing price pressures and large rate cuts in 2024”.
