Red Sea crisis creates trade woes for Australia

Australia's agriculture industry is facing challenging trading conditions as the escalating conflict in the Red Sea heightens the risk of shipping through the region.

The conflict has increased the risk of shipping through the Red Sea and particularly through the Suez Canal, one of the world's most important maritime channels connecting Asia-Pacific with Europe and the Middle East. The US and UK launched a new round of strikes on Houthi-controlled areas of Yemen on 22 January in response to the militants' attacks in the Red Sea.

Australian live cattle and sheep exports into the Middle East and surrounding countries for 2023 totalled 379,454 head out of a total of 1.28mn, according to data from Department Agriculture Fisheries and Forestry (DAFF). An Australian live cattle and sheep vessel bound for the Middle East was told to return to Australia on 20 January with health and welfare concerns for staff and animals, according to DAFF.

Australian beef exported to the Middle East in 2023 totalled 28,977t and 2,406t to the UK, according to DAFF data.

Australian beef exporters have been struggling to secure container and shipping space to export to the Middle East and European countries, with ships changing schedules and routes regularly because of the increased risk factors.

Many shipping companies have opted out of using the Suez Canal to take the lower risk longer route around South Africa and up through the Atlantic Ocean to avoid any potential conflict zones in the Red Sea. Rerouting shipments around the Cape of Good Hope adds around 10 days to the duration of the trip depending on the vessel type and speed, according to ING Bank Commodities Strategists.

Australian canola exports may be particularly affected, as the bulk of these are destined for the EU and normally shipped through the Suez Canal, according to RaboResearch general manager Stefan Vogel.

The canal issues might help Australian wheat and barley shipments to be slightly more competitive into destination markets in Asia-Pacific, the Middle East and east Africa because 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, Vogel said.

But imported goods into Australia will have to bear higher freight costs, although container freight is unlikely to get as expensive as in 2021, Vogel said. Increased voyage times will increase shipping costs for exporters along with the cost of goods, parts and machinery coming into Australia.

By Jessica Clarke