The United Nations Conference on Trade and Development (UNCTAD) estimates that weekly traffic through the Suez Canal has decreased by 42% since November 2023 with container ship transits down by two thirds compared to this time last year following attacks on commercial vessels. Meanwhile, reduced water levels on the Panama Canal meant shipping traffic in January fell by 36% compared to the same period in 2023.
Global brands have referred to the impact of this disruption on their businesses, with production pauses at Suzuki and Volvo being blamed on parts shortages caused by reduced traffic through the Suez Canal.
“Initially, Maersk announced its intent to divert vessels around the Suez Canal by sailing around the Cape of Good Hope, extending trip times by at least two weeks,” explains Jonathan Colehower, Global Supply Chain Strategy Lead at UST. “Unfortunately, due to drought conditions in Central America, capacity at the Panama Canal – which would be an obvious alternative – is limited. Retailers such as Ikea and Electrolux have announced product delivery delays.”
Several factors complicate the problem. First, it is unclear how the Middle East conflict will develop. Second, it is unclear when the drought conditions will improve enough to add capacity to the Panama Canal. Finally, ocean freight is moving slower.
“ESG regulations have cut vessel speed by 8% to 10% and sailing around the Cape of Good Hope is treacherous, further reducing predictability,” says Colehower. “Diverting cargo bound for the US east coast to western ports, such as Seattle and Long Beach, during winter months is risky due to weather delays.”
He recommends companies concerned about the impact on their business to identify merchandise that has not yet been dispatched to evaluate alternatives and adjust order quantities to account for tighter inventory. “Decide which buys should be increased and which can be delayed and identify suitable alternatives for ‘never out’ products that should be sourced elsewhere,” adds Colehower.
Craig Fuller, CEO of global supply chain market intelligence provider FreightWaves agrees the situation in the Red Sea demands that supply chain professionals think differently about where and how they source their products.
In an interview with Yahoo Finance, he warned that European businesses would feel more financial pain than their counterparts in North America since the majority of the latter’s trade in container goods comes out of Asia and onto the west coast.
UNCTAD suggests average container spot freight rates increased by more than US$500 during the last week of December, while rates from Shanghai to Europe more than tripled in a single week last month. Daily shipping and insurance premiums prices have also surged.
These findings tally with data from Transporeon indicating the price of container shipping from Asia to Europe has increased by 300% since the first Red Sea attacks. While there are a range of options open to shippers, from using air cargo, modifying cargo loads, and using alternative routing options, these will likely impact shipping economics and vessel profitability, says Transporeon Director, Bernhard Schmaldienst.
“Therefore, shippers should weigh up their options to get their cargo to its intended destinations on time to keep up with consumer demand,” he adds. “As the Red Sea situation will not improve over the next fortnight, strategic and agile planning will become even more crucial in order to deliver goods on time.”
Prolonged interruptions pose a direct threat to global supply chains. While current container rates are approximately half of the peak during the Covid crisis, passing on higher freight rates to consumers takes time and the full impact is only likely to be felt later this year.
