Jan 5, 2024 - Economy

The global supply chain is reeling from the Red Sea attacks

Data: Freightos; Note: Rates as of Jan. 4 are daily, not weekly; Chart: Axios Visuals

The price of sending goods around the world is spiking after six weeks of disruptions in the Red Sea, where Iran-backed Houthi militants are attacking commercial shipping vessels.

Why it matters: The disruptions pose a threat to the global economy, nearly four years after COVID woke the world up to the existence — and fragility — of supply chains.

  • The situation could mean higher prices, just as inflation is coming down, and cause shortages of goods, just as retailers have finally recovered from the roller coaster of the past few years.

State of play: About 30% of global container ship volume moves through the Suez Canal, which links the Red Sea with the Mediterranean Sea, says Jonathan Colehower, managing director of the global supply chain practice at UST.

  • But since the Houthi attacks got underway, shippers have been forced to reroute container vessels to avoid the area.
  • The situation is unfolding at the same time that the Panama Canal — which handles 8% of shipping volume — is at reduced capacity due to drought, and shippers were using the Red Sea as an alternate route.

Driving the news: Most container carriers had diverted traffic away from the region but shipping giant Maersk was tentatively restarting shipping last week — and one of its vessels was attacked on Saturday.

Zoom in: Diverting container ships to avoid the Red Sea is adding time to the shipping process.

  • If a carrier goes around the southern tip of Africa, for example, instead of through the Suez to ship goods to New York, it adds 13 to 15 days of travel time to a shipment, says Colehower.
  • That in turn winds up pushing out shipping timelines by months, he says. He's advising large clients, like Costco, to expedite any shipments they can and delay less necessary orders.

By the numbers: Spot rates for shipping goods from Asia to Northern Europe are up 173% compared to before shippers started rerouting shipments, and rates to North America's East Coast are up 52%, according to a report from Freightos, a booking and payments platform for international freight.

Threat level: This isn't 2020 — our store shelves are still filled with toilet paper and you can probably get a trampoline or a couch delivered within a reasonable time frame.

  • Even though rates are still likely to rise, they're still likely to be anywhere from 45% to 75% lower than during the peak of supply chain issues in 2021, per Freightos.

Yes, but: "I wouldn't necessarily say just yet that [the Red Sea disruption] is not as big a deal as what we experienced with the pandemic," says Colehower. "I think that it could be equally as challenging."

  • Though the crisis got underway after the holiday shipping rush, demand is going to ramp up — especially as shippers "pull forward demand" to deal with the crisis, Judah Levine, Freightos' head of research, writes in the report.

What to watch: "What we're looking at now is summer of 2024," says Colehower. Large retailers are supposed to get their summer inventory in the next three to six weeks, but that will be delayed, he says.

  • That's when consumers could start to feel the impact of what's happening.

The bottom line: Another year, another lesson in how geopolitics can suddenly, unexpectedly upend the markets.

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