The Red Sea Crisis and its impacts on supply chain

Latest updates by Transporeon’s Ocean Market Intelligence team


From the moment the Houthis officially announced entry into the Israeli war on Gaza to support Palestinians at the end of October of 2023, tensions in the Red Sea - more specifically around the Bab al-Mandab Strait, next to the area in Yemen controlled by the Houthi militants - started to arise. Since then, Houthi forces seized the Galaxy Leader container ship (19Nov 2023), attacked the Norwegian vessel Strinda of Yemen (12-Dec), and continued assaults on maritime vessels by Houthi insurgents have disrupted the flow of seaborne commerce through this crucial water passage, impacting global trade and supply chain.

Every year, billions of dollars’ worth of traded goods and supplies navigate through this vital waterway. Approximately 12% of the world's trade traverses the Red Sea, encompassing 30% of the global container traffic. Consequently, any disruptions in this region can have repercussions on petrol prices, the accessibility of finished consumer goods, and semi-finished products, and various facets of international trade - especially in Europe.

Container shipping has been particularly impacted, as numerous vessels are now opting for alternative routes around the Cape of Good Hope to avoid Houthi attacks. The number of vessels transiting the Red Sea has dropped by over 50% since early December, with major ocean carriers, like Maersk, Hapag-Lloyd, and MSC suspending Red Sea transits indefinitely. This shift has led to a substantial increase in both travel durations and freight expenses, simultaneously influencing the local demand for marine fuel (the Cape route adds up to 14 days and 20-23% extra fuel to Asia-Europe transits in comparison to the Suez Canal route) and the prices of insurance risk premiums. According to Transporeon’s data, the price of container shipping from Asia to Europe has already increased by 300%, while the disruptions in the Red Sea - when paired with the Panama Canal drought - have indirectly led to a surge in rates across all ocean shipments.

“While there is a range of alternative 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. Ultimately, these costs will end up being passed down to businesses and consumers if goods are not delivered on time. With roughly 12% of total world trade and 30% of all global container traffic travelling through the canal every year (about $1 trillion in cargo), this is a critical waterway. As the Red Sea's situation will not improve over the next fortnight, strategic and agile planning will become even more crucial to mitigate additional costs being passed to consumers, while still keeping up with demand.” - Bernhard Schmaldienst, Director of the Visibility Tribe at Transporeon (a Trimble Company)

Transporeon’s Ocean Market Intelligence team is closely monitoring the situation and will keep updating this article to keep you informed of the current situation in the Red Sea and its impacts on our customers.

Last updates on the Red Sea and Suez Canal:

Thursday, March 14, 2024
  • OceanScore analysis shows near-tripling of EU ETS costs due to Red Sea crisis

Persistent missile attacks by Houthi rebels on ships in the Red Sea have led to increased emissions liabilities for shipping companies, due to lengthy voyage diversions and higher fuel consumption. The alternative route via the Cape of Good Hope has seen a significant increase in distance travelled, resulting in elevated costs for companies under the EU Emissions Trading System (EU ETS). Despite rising EU Allowance (EUA) requirements and potential cost implications, ensuring the safety of crews and vessels remains the top priority amidst ongoing security threats.

  • US carries out six ‘self-defence’ strikes against Houthi targets

The US said it carried out six strikes in self-defence against Houthi targets on Monday afternoon and evening, hours after the rebel group warned it would escalate attacks during Ramadan in solidarity with Palestinians in Gaza. Yemen’s internationally recognised government, which has been fighting a civil war against the Houthis, told Reuters that US airstrikes hit port cities and small towns in western Yemen, killing at least 11 and injuring 14. However, no casualties were confirmed by the Houthi military spokesperson.

  • Container freight rates are falling on all routes

The first week of March 2024 is still positive for those shipping containers on global maritime routes, as the Drewry Container Index shows a decline in spot freight on all routes considered. The global index fell 6% to $3,287 for a 40-foot container. The two routes between China and Europe show a reduction of 6% (to $4,449 per container) between Shanghai and Genoa and of 7% (to $3,650 per container) between Shanghai and Rotterdam. However, the values still remain well above those of a year earlier, at 95% and 134% respectively. This not only highlights the industry's resilience and adaptability in the face of unprecedented challenges, but also highlights the inflationary pressures that have characterised the post-pandemic period.

  • Red Sea disruptions benefit shipping companies’ near-term profitability

Global shipping companies’ short-term profitability will benefit from increased freight rates, which exceed the costs of re-routing following persistent attacks on commercial vessels in the Red Sea, Fitch Ratings says. Container freight rates have surged as a result, with the World Container Index rising by 151% since early October 2023. Rates on Asia–Europe routes have increased by 284%, and more than doubled on other main East–West lanes. While operators have some flexibility to offset the longer routes by increasing vessel sailing speed, low excess capacity means other measures, such as the use of idle fleets or delaying planned vessel scrapping, have a limited impact on capacity absorption. However, scheduled deliveries of new ships in 2024 will restore overcapacity, according to Maersk. Increased vessel chartering demand will also help maintain schedules.

  • Russia profits from Red Sea crisis, sees rail freight to Europe grow

Russian Railways (RZD) is benefitting from the ongoing crisis in the Red Sea, according to a number of European logistics companies. As maritime shippers have diverted their routes, logistics companies are getting more and more requests to transit goods through Russia as a quicker and cheaper alternative.

Friday, March 08, 2024
  • Threat to the internet in Europe grows as the crucial Red Sea data cables are cut

Hong Kong-based HGC Global Communications and US officials told to BBC News that 25% of the data traffic flowing between Asia and Europe is being affected and that the data has been rerouted to Europe through cables in mainland China and under the Pacific Ocean to the US, as well as using the remaining cables in the Red Sea. The Houthis - who control much of western Yemen's Red Sea coast - denied it, but later said that their attacks are a show of support for the Palestinians in the war between Israel and Hamas in the Gaza Strip.

  • Worldwide air freight volumes grow a record 9% due to the Red Sea crisis

Suvarnabhumi Airport has seen increased sea-to-air traffic this year. Bangkok Flight Services stated that, with the impact of the Red Sea crisis, together with the higher-than-expected surge before Chinese New Year, they needed to build up a backlog of cargo for processing and to suspend processing of imports. The impact of collective spikes in Bangkok, Colombo and Dubai led to a record rise in global air transport volumes in just one week, reported on February 25.

  • The first ship to sink in the Red Sea is causing a major environmental crisis

The Belize-flagged, UK-owned bulk carrier, Rubymar, was hit by an anti-ship ballistic missile fired by Yemen’s Houthi rebels on February 18 and sank on March 2. Leaking of the ship’s engine oils can lead to a disaster in the Red Sea, affecting delicate marine ecosystems, including coral reefs. Many commercial shippers have diverted their voyages to the longer route, but the risk remains, that vessels could run into the sunken Rubymar.

  • Return of the French carrier means cheaper prices for customers

CMA CGM stated that they have reassessed the situation in the southern Red Sea and that evolving conditions allow them to proceed with individual transits on a case-by-case basis. The company believes in the coalition and its efforts in this area. A return to the Red Sea could win business from competitors, as customers want their goods delivered quickly and the French shipping company can offer a cheaper price.

  • Container ship MSC Sky II hit by Houthi missile

US command Centcom confirmed the event that took place between 13:50 pm and 14:15
on 4 March 2024. The ship was the target of two ballistic missiles launched from Yemen territory, one of which hit it, causing a fire that was extinguished by the crew. Another missile was launched by the Houthis at 02:15, falling into the sea. Around 20:00, US military ships shot down two anti-ship missiles which were targeting a merchant ship and a US Navy ship.

  • The financial impact of the Red Sea crisis is real

Although the reasons for the current situation are very different, it is possible to draw a significant parallel with the grounding and arrest of the container ship, Ever Given, in the Suez Canal in March 2021. Businesses are starting to feel the financial security risks and impact as disruptions affect ocean freight through the Red Sea and Suez Canal. It mainly hits shipments from Asia to Europe and some US routes. The cost of shipping from Asia to EU ports has risen from less than $2,000 per 40-foot container to more than $5,000 before December 2023. Almost all shipping lines have to route their routes through the Cape of Good Hope instead of the Suez Canal, which increases costs and transit time. The lack of empty containers has also been raised by shipping lines. However, the increasing freight costs seem unreasonable. Shipping lines have leveraged them to cover the costs of new ships to be launched in 2024.

Friday, March 01, 2024
  • CMA CGM Group announces partial return to routing through Red Sea

In a press release distributed by the ocean carrier on February 28, it announced resuming vessel transit through Southern Red Sea on a case-by-case basis, with each vessel's situation being a separate assessment before transit. Most of the vessels are still expected to be rerouted through the Cape in the near future.

  • UNCTAD releases rapid assessment report on impact to global trade of disruptions of shipping routes

In the report, United Nations Conference on Trade and Development outlined that simultaneous threats to key shipping routes in the Red Sea, Black Sea, and Panama Canal pose significant risks for inflation and the security of food and energy supplies, with recent attacks in the Red Sea disrupting Suez Canal traffic and geopolitical and climate challenges affecting global trade. These disruptions are increasing trade costs, insurance premiums, and greenhouse gas emissions, with developing economies especially vulnerable to the impacts on trade, energy, and food security.

  • India renewed open sky policy for foreign air cargo carriers

India has opened its skies to foreign-operated cargo flights for the next three years, a move aimed at boosting international trade by improving the efficiency and volume of cargo operations and strengthening connectivity with the global market. This development comes at the time of notable capacity shortage, and rates rally on air routes from India to Europe due to increased importance of air and sea-air cargo routes in dealing with the consequences of the Red Sea crisis for time-critical supply chain links.

  • Reports state air cargo resurgence in February

Air cargo transport experienced robust growth, particularly on routes between Asia and Europe, as shippers sought alternatives to maritime transport disruptions caused by Houthi attacks on ships in the Red Sea. Maritime-air hubs like Dubai, Colombo, and Bangkok have seen surges in air cargo, driven by the need to replenish European stock diminished by the diversion of shipping routes away from the Suez Canal to the longer Cape of Good Hope route. While the Lunar New Year complicates direct week-to-week comparisons, the first seven weeks of 2024 have shown a significant increase in air cargo volumes to Europe from these hubs, with a year-on-year increase of over 50%, despite the overall global air cargo capacity being significantly higher than the previous year.

  • Hapag-Lloyd raises tariffs from Indian Subcontinent to Europe

Hapag-Lloyd has announced a tariff increase for 20’ and 40’ Dry containers – including High Cube equipment – from the Indian Subcontinent to North Europe, effective from 6 March 2024 with rates rising by $300 for 20’ containers and $500 for 40’ containers. The price hike will affect shipments to various North European countries. Since this announcement, other major shippers like CMA CGM and Maersk have not indicated similar increases on their European routes.

  • Container freight rates continue downwards movement

The Drewry World Container Index (WCI) saw a 5% decrease to $3,493 per 40-foot container this week, the fifth consecutive week with a decrease. Yet, the index remains 88% higher than the same week last year and 146% above the pre-pandemic average of 2019. The average composite index for the year-to-date stands at $3,553, which is $859 above the 10-year average. A slight downward trend in spot rates from China in the coming weeks is still anticipated.

Wednesday, February 21, 2024
  • Global air cargo drops by double digits

Analysis of the sixth week of 2024 (February 5 to 11) by WorldAcd indicates that the average global rates had a slight increase. While in China, rates surged up to one week before the Lunar New Year (February 15), with air cargo tonnages entering the country decreasing by 15% and tonnages leaving the country declining by 2% in the last week. Inbound and outbound tonnages are expected to fall further the following week.

  • AEPC requests suspension of transshipment of Bangladesh export cargo via Delhi

Apparel exporters body AEPC urged the government to suspend an order that allows the transshipment of Bangladesh export cargo to third countries, through the Delhi Air Cargo complex. This is due to the Red Sea crisis increasing transportation costs and shifting export shipments from sea to air mode. Excessive increases in air freight rates, delays in handling and processing of export cargo, and severe congestion at Cargo Terminal make exports uncompetitive.

  • Maersk says Red Sea vessel diversions could extend into the second half of 2024

A.P. Moller-Maersk, the second-largest global ocean carrier, is advising customers to prepare for a Red Sea crisis that could stretch well into the second half of this year. Charles van der Steene, regional president for Maersk North America, told CNBC: “Unfortunately, we don’t see any change in the Red Sea happening anytime soon. We’re advising them the longer transit routes could last through Q2 and potentially Q3. Customers will need to make sure they have the longer overall transit time built into their supply chain.” 

  • Air freight volumes through Durban Dube TradePort terminal spike

Air freight volumes through Dube TradePort’s cargo terminal at King Shaka International Airport in Durban (South Africa) increased 57% quarter-on-quarter from September to December 2023. Port challenges continued to drive significant demand towards airfreight in January 2024, says an official release. Volumes have risen significantly over the past six months as the effects of congestion and slow-throughput capacity at South Africa’s major ports ripples across the supply chain.

  • The Houthis hit an oil tanker and a bulk carrier with missiles

The offensive of the military coalition led by the United States against the Houthis does not appear to have eliminated the risks to navigation in the area of the Red Sea. There were two missile attacks conducted by the Yemenis on February 15 and 17, 2024. They targeted the oil tanker Pollux, which was hit on the port side as it sailed northwest of the Yemeni port of Mokha, and the bulk carrier Lycavitos, a 58,800 gross tonnage Supramax, which was hit while sailing 85 miles east of Aden. It was damaged, but again continued autonomously sailing towards the Red Sea to reach Suez, where it was supposed to unload material loaded in Singapore.

  • Container freight rates drop in mid-February

The spot freight rates for maritime container transport are declining in mid-February 2024, which is a sign of a possible adjustment after the surge between the end of 2023 and the beginning of 2024 caused by the Red Sea crisis. The weekly readings of the Drewry Container Index show decreasing values on almost all routes, with only transatlantic freight rates remaining on the rise. The average rate for 40-foot containers between Shanghai and Genoa fell 1% in a week to $5,173. Going up to Rotterdam, the average freight rate for a container from Shanghai dropped by 3% to $4,288 and the freight rate for a trip in the opposite direction fell by the same percentage, to $958.

Tuesday, February 13, 2024
  • Tankers: Red Sea Crisis Impact Not That Significant Yet

The impact of the Red Sea crisis on tanker freight rates has so far been limited to a few key routes and ship types, but that could soon change. As of now, there is very little change to tanker traffic transiting through the Red Sea compared to two weeks ago. Despite lower volumes, we have seen a stunning spike in clean tanker rates, as most vessels opted for the safer route via Cape of Good Hope. Furthermore, the drop in shipments to Europe was more than offset by increases in exports elsewhere, whilst the lack of LR Ballasters from the West also contributed to extreme tightness in tonnage availability.

  • Red sea disruptions cost exporters dear

Disruptions in the Red Sea route are pushing up logistics costs for exporters in India, even as several small volume cargoes are diverted from sea route to air, which is leading to space constraints and higher air freight charges. The exporters are trying to negotiate with their buyers. If the buyers share the costs, there is some relief for the exporters.

  • Military ships are not enough and the future is uncertain

The repeated ground attacks carried out by the US-led military alliance against the positions of the Yemeni Houthis are not stopping the launches of missiles and drones carried out by the latter towards the merchant ships sailing off their coasts. In an interview with Bloomberg TV, Maersk CSO Vincent Clerc specified that at the moment the situation is "escalating" and that there is no clear vision of when it will be possible to resume normal navigation through the Red Sea. The French CMA CGM has also decided to completely abandon the Red Sea route, after the recent attacks on its ships traveling under military escort. And on the morning of February 6, 2024, two ships were the subject of such attacks: two bulk carriers, the Star Nasia and the Morning Tide.

  • Can plunge in Suez Canal earnings prompt Egypt to broker peace to end the Red Sea crisis?

The conflict is reshaping global maritime trade, causing a decline in Suez Canal toll earnings and prompting potential diplomatic efforts to broker peace in the region. Analysis of Suez Canal toll fees from early 2023 to January 2024 reveals an overall reduction of approximately 40%, translating into financial implications for both the canal and the Egyptian government. As such, Egypt might have an important financial incentive to lead diplomatic efforts to broker peace in the ongoing conflict as calls for a humanitarian ceasefire continue to mount across the globe.

  • Air freight rates drop despite the Red Sea crisis

In January 2024, the crisis in maritime container transport caused by the conflict in the Red Sea did not bring significant changes to air transport rates, indeed in the annual comparison even a reduction emerges from the findings of the Baltic Air Freight Index (BAI) – air freight rates from Hong Kong and Shanghai to Europe fell in January by 16% and 26%, respectively (year-on-year), despite being 46% and 21% higher than pre-pandemic levels. This is because the increase in demand corresponds to an increase in capacity, especially belly, and a stabilisation of the fuel price. But the situation could change based on the evolution of the Red Sea crisis.

  • Impact on the automotive industry in Europe

China has become an integral part of the European automobile manufacturing supply chain with its cost-effectiveness and industrial cluster advantages. Statistics show that about 70% of the parts for the European automotive industry come from Asia across the Red Sea. Once the important sea routes connecting Europe and Asia are interrupted, parts logistics will inevitably be delayed. In this case, downstream automobile assembly plants will be forced to suspend operations until key parts are delivered before assembly can resume. As a result, the Red Sea conflict has begun to hamper European car production with companies like Tesla, Volvo and Suzuki halting production for some days.

Tuesday, 6 February, 2024
  • Container freight reverses the trend

The Drewry index on February 1, shows that the last week of January 2024 cooled spot freight rates for container maritime transport, bringing the arrow back to red after two months of strong growth. The composite index, which includes all routes, fell by 4%, settling at $3,824 per FEU (40-foot container). But the trend is not homogeneous, because the routes that touch the United States still show growing values. Things are better for Europe, where rates are decreasing. Freight between Shanghai and Genoa shows the greatest decline, equal to 8%, returning below the threshold of $6,000 per FEU ($5,848). The value between Shanghai and Rotterdam fell by 6%, to $4,661, and the freight rate fell by the same percentage in the opposite direction, falling below $1,000 ($964). Transatlantic routes have risen with freight between Rotterdam-New York rising by 1% to $1,589, and by 3% in the opposite direction to $635.

  • Global shippers look for alternatives to the Red Sea

Nearly two-thirds of shippers who participated in a survey conducted by Ti Insight said they diverted some portion of their shipments away from ocean freight services. Among the various modal shift options available, switching from sea to air was the most common choice (17.2%). However, there has been a shift towards multimodal solutions (air-sea and sea-land combinations). equally significant, reaching almost 20%. This is due to the cost advantages of combined transport, compared to a complete switch to air transport.

  • Demand for air cargoes continues to rise amid Red Sea crisis

Various sources confirm the rise of air freight demand and rates amid the crisis at the Red Sea. The overall Baltic Air Freight Index (BAI00) calculated by TAC Data was flat to down for the first three weeks of the year before rising +6.4% in the week to 29 January. IATA highlights cargo demand rebound in 2023, with December recording the highest annual growth rate over the past two years. Kerry Logistics has reported seeing more airfreight and sea-air enquiries as ocean freight shipment delays take their toll. 

  • Survey shows UK manufacturers hit by Red Sea disruption

The UK purchasing managers’ index was at 47.0 in January, up from 46.2 in December but below an earlier flash estimate of 47.3 - which indicates industry contraction. In a survey conducted by S&P Global, manufacturers affirm that the additional 12 to 18 days on some expected deliveries disrupt their production schedules and raise inflationary pressures at a time when companies are struggling with weak demand at home and overseas.

Tuesday, January 30, 2024
  • UN: Global trade is being disrupted by Red Sea attacks, war in Ukraine and low water in the Panama Canal

The UN trade body has warned that global trade is being disrupted by attacks in the Red Sea, the war in Ukraine, and low water levels in the Panama Canal. Shipping costs have surged and energy and food costs are being affected, raising inflation risks.

  • LR2 freight is at almost four-year highs and container freight rates may increase at least until February

The freight rates for tankers bound for Europe have reached their highest level in almost four years due to increased turnaround times caused by the Red Sea crisis and the limited availability of LR1 and LR2 tankers. Rates for ocean container shipping are projected to exceed 6,500 per FEU between Asia and the Mediterranean by 2 February. Shipping companies are reorganising their services to accommodate the Good Hope route, and the situation is likely to lead to inflationary costs and higher travel budgets for jet fuel and diesel deliveries in Europe.

  • Red Sea Crisis Sparking Air Cargo Surge

Air freight rates have increased for the first time in seven weeks due to the upcoming lunar new year in Asia and attacks on Red Sea shipping. The Baltic Air Freight Index rose by 6.4% in the week leading up to Monday, reversing previous declines. According to data provider WorldACD, while demand continues to improve - having increased by 5% in the two weeks leading up to January 21 - airlines have also been busy adding aircraft back into service resulting in a 12% rise in capacity, meanwhile rates are down 22% at $2.35 per kg. 

  • Shipping Disruptions: Impact on Global Supply Chains and Economies

Electronics, chemicals, automotive, machinery and other engineering industries in Europe are the most vulnerable to trade disruptions as they rely heavily on imported components from Asia in their production network, leading to potential production halts, shipment delays, increased logistics costs, and a risk of economic slowdown. This will prompt companies to diversify supply chains and re-shore production to mitigate risks.

  • European and US retailers absorb Red Sea shock, wary of hiking prices

European and US retailers are experiencing transport delays and increased costs due to disruptions in the Red Sea. Despite limited workarounds, retailers are choosing to absorb the higher transport costs rather than raising prices to maintain profitability. "Nearshoring" to source from local suppliers is being considered, but challenges such as cost and competition from China hinder widespread implementation.

  • Spoilage alert: Red Sea crisis hits Europe’s fresh food trade

Houthi attacks on shipping in the Red Sea are causing significant disruptions to the fruit and vegetable trade, leading to delays of up to three weeks and a fivefold increase in container costs. Southern European exporters, such as Italy, Greece, and Cyprus, are particularly affected, struggling to meet foreign market demands for perishable goods. There are concerns about a potential dumping of thwarted exports on the EU market, and the overall impact on global supply chains is causing instability and uncertainty.

  • Steel sector unsettled by Red Sea shipping crisis

Some Asian steelmakers are withdrawing from the European market or changing their shipping arrangements by shifting to FOB offers and leaving steel buyers to make their own transport arrangements, while other offers exclude the payment of duties. The crisis, combined with the implementation of carbon emissions reporting regulations, is expected to consolidate higher prices offered by European mills and could have a longer-term impact on the European economy by severely reducing the appeal and availability of steel imports.

  • The Red Sea shipping crisis has pushed up chemical prices in Asia

The price of chemicals in Asia, particularly butanol, ethylene glycol, and butadiene, has risen significantly. The crisis has primarily impacted Southeast Asia and India, while China's PP prices are expected to be less affected due to abundant supply.

  • Italy calls for temporary suspension of Brenner lorry bans over Red Sea crisis

The Italian Federation of Road Transport (FAI) is urging the EU to intervene and request Austria to remove restrictions on lorry traffic through the Brenner Pass. This would establish quicker freight routes from Italian ports to European destinations. The crisis in the Red Sea has prompted this call for action.

Wednesday, January 24, 2024

The situation remains highly tense in the region

  • Attacks on commercial vessels and general unrest continue in the Red Sea region, where individual interests of major world powers often collide. Some incidents spread over to the Persian Gulf region. 
  • Navies of 10+ countries, including the US, Spain, Canada, France, Italy, and the UK announced coordinated defence operations. The US Navy launched several strikes at rebels between 12-18 Jan.
  • Possible retaliation from the Iranian military followed when a helicopter boarded a Greek-flagged oil tanker, ST NIKOLAS, off the coast of Oman, demanding it to divert to an Iranian port.
  • Most major ocean carriers are diverting container ships to the Cape of Good Hope Route.
  • Estimates are that up to 30% of existing global ocean container capacity is affected by the situation and may need a change in scheduled routes.
  • Fuel reserves in South African, West African, and Canary Island ports are under scrutiny. Durban covers especially large additional demand and sudden changes in consumption in the region already demand higher prices and might introduce further market imbalance.
  • Long-time planned Suez Canal 15% fees increase since  15 January 2024 add to the list of  reasons for carriers to avoid the passage.
  • According to IfW Kiel, recent attacks by Houthi rebels on commercial ships in the Red Sea have contributed to a significant decrease in global trade, with a 1.3% decline recorded in November and December 2023.

World assesses consequences

  • Industry sentiments are that a return to a normal, pre-December risk level is unlikely in the short term.
  • Spot freight rates on the affected maritime corridors soar, as the previous excess tonnage supply situation is turned upside down. Current expectations are that this situation will remain at least until the nearest demand peak in Q2 and will largely calm after either a reduction of active risks, or settling over new schedules and routes.
  • General advice is to allow some internal leeway during delivery planning and multi-threaded procurement with several carriers and services. Time-critical cargoes may need to shift to air mode. Increasing data usage and communicating shipping cost increases and potential surcharges to relevant internal stakeholders are also very important. Carriers are likely to drop some contracts that were signed before the crisis erupted.
  • Long-term structural shifts and effects are less likely compared to the 2020-2021 situation, as planned capacity is projected to stay over demand.

The impact on shippers and consumers

The crisis on the Red Sea is considered as one of the biggest supply chain disruptions since COVID-19.

Container vessels carrying finished consumer goods and semi-finished products are most impacted by the disruption. Shipping firms are confronted with a binary decision: either confront the hazards associated with navigating the Red Sea and incur escalated insurance expenses, or opt to reroute their vessels. Both options entail elevated costs, with the alternative of diverting ships around Africa also introducing the possibility of delays.

Oil and fossil gas prices have risen since the beginning of the attacks, and energy costs may rise further with more and more vessels from oil companies diverging from the Red Sea route.

As vessels taking the route around the Cape of Good Hope face a longer journey, of about two weeks, that will lead to further delays for ships returning to Asia, which in turn can lead to contract cancellations and extra costs. Some loads,  for example, time-sensitive goods or products with more value-added, could be shipped by air, but this is expensive and will impact costs and global prices too. 

All the above-mentioned factors represent an additional cost element to companies, consumers, and governments that have been battling challenging inflation rates in several countries for the last couple of years. The pressure to control inflation might impact how central banks manage their interest rates and lead the global economy to a longer period of economic adjustments before funding becomes more easily available for economic development and growth. It’s hard to predict the impact on inflation and consumer prices, but end consumers should brace themselves and expect some price increases on the shelves.