Houthi attacks in the Red Sea keep the global economy in suspense: Concern increases over impact on industries

Houthi attacks in the Red Sea threaten the world economy (Reuters)

Car factories have become idle belgium And Germany, Lines for spring fashion have been delayed at a popular British department store. a company of maryland This leaves hospital supplies unable to know when to expect parts from Asia.

Attacks on ships in the Red Sea deal another blow to global tradeWhich links port jams related to the pandemic and the Russian invasion of Ukraine.

Houthi rebels in Yemen are trying to stop Israel’s offensive against Hamas in Gaza attacks on cargo ships Those navigate the waterway connecting Asia to Europe and the United States, carrying traffic away from the Suez Canal and around the tip of Africa. The disruption is causing delays and rising costs, at a time when the world has yet to overcome a resurgence in inflation.,

“What’s happened right now is short-term chaos, and chaos drives up costs,” said Ryan Peterson, CEO of supply chain management company Flexport. ,Each ship diverted carries 10,000 containers, “It takes a lot of emails and phone calls to re-plan each of those container trips.”

Peterson calls it confusion in global shipping “double whammy”: passing through another important trade corridor Panama Canal, restricted by low water levels due to drought. And shippers are rushing to move goods before Chinese factories close for the Lunar New Year holidays from Feb. 10 to 17.

Tribesmen loyal to the Houthis walk past American and Israeli flags at a parade site for new tribal recruits amid escalating tensions with the US-led coalition in the Red Sea in Yemen’s Bani Husaysh (Reuters/Khalid Abdullah)

The longer the war in Gaza continues, the danger increases., Peterson says a year’s disruption in Red Sea trade could push commodities inflation up to 2%, adding to the pain as the world already grapples with rising grocery prices, rents and other things. This could mean even higher interest rates, which weakens economies.

Currently, Man & Machine in Greater Landover, Maryland is awaiting shipment from Taiwan and Greater China. It’s been one blow after another for the company, which makes washable keyboards and accessories for hospitals and other customers.

Founder and CEO Clifton Brumand typically receives a shipment of components once a month, but the latest delivery, which left Asia four weeks ago, is delayed. The normal, three-week route through the Suez Canal has been closed due to Houthi attacks.

Diversion to the Panama Canal also did not work: a drought-related disaster caused disruption to shipping. Now, you have to cross the Pacific Ocean to Los Angeles and get to Maryland by truck or train. Bromond has no idea when the products will arrive.

“It’s annoying and it’s interesting. I think our customers, everybody understands that. It’s not like, ‘Why didn’t you plan for this?’ Who knew?” he said. “We call our customers and tell them, ‘Hey, there’s going to be a delay. That’s why it is.’ “Nobody likes it, but it’s not going to kill anybody, it’s just another frustration.”

The normal, three-week route through the Suez Canal has been closed due to Houthi attacks. EFE/EPA/Khaled Elfiki

Other industries are also facing similar problems.

electric car manufacturer Tesla Will have to close my factory near berlin From Monday to February 11th due to shipping delays. Chinese-owned Swedish car brand volvo Paralyzed its assembly line GhentBelgium, where it manufactures trucks and suvWaiting for an important piece to air for three days this month.

production in a plant Suzuki in motor corporation Hungary It was stopped for a week due to delay in getting engines and other parts from Japan.

British retail chain Marks & Spencer warned that new spring clothing and home goods collections due in February and March would be delayed due to the turmoil. Chief executive Stuart Machin said: The Red Sea problem was “affecting everyone and it’s something we’re very focused on.”

About 20% of clothing and footwear imported into the United States comes through the Suez Canal, said Steve Lamar, executive director of the American Apparel and Footwear Association. For Europe, the impact is even greater: 40% of clothing and 50% of shoes cross the Red Sea.

The longer the war in Gaza continues, the greater the danger. Reuters/Amar Abdullah Dalsh//file photo

“This is a crisis that has a global impact on the shipping industry”Lamar said.

Flexport says that as of January 19, about 25% of global shipping capacity is being or will be diverted from the Red Sea, adding thousands of miles and a week or two to journeys.

The cost of shipping a standard 40-foot container from Asia to Northern Europe has dropped from $1,500 in mid-December to about $5,500. Moving Asian cargo to the Mediterranean is even more expensive: about $6,800, up from $2,400 in mid-DecemberAccording to the Freightos cargo booking platform.

But the situation could be even worse. At the peak of supply chain backups two years ago, it cost about $15,000 to ship a container from Asia to Northern Europe and about $14,200 to move a container from Asia to the Mediterranean.

“In terms of supply chain disruptions, we are not even close to what was happening during the pandemic.”said Katherine Russ, an economist at the University of California, Davis.

British oil tanker ‘Marlin Luanda’ attacked by Yemen Houthis. Indian Navy

In 2021 and 2022, American consumers, battered by COVID-19 shutdowns and armed with government relief checks, began spending by ordering furniture, sports equipment, and other goods. Their orders put pressure on factories, ports, and freight yards, causing delays, shortages, and higher prices.

Now things are different. Following supply chain disruptions, shipping companies expanded their fleets. They have more ships to deal with accidents.

“The market is in a state of overcapacity”“Which turns out to be a good thing,” said Judah Levin, head of research at Freightos. “There must be adequate capacity to accommodate this disruption.”

Global demand has also cooled, partly because the US Federal Reserve and other central banks have raised interest rates to tackle inflation and partly because China’s powerful economy is faltering. Inflation has declined over the past year and a half, although it is still higher than central banks expect.

“There are really big forces driving inflation down,” said Russ, who was a White House economic adviser in the Obama administration. “It is difficult to see (the disruption in the Red Sea) significantly worsening the decline in inflation that we are seeing by more than a tenth of a percentage point here and there.”

“This is a crisis that has a global impact on the shipping industry.” Europa Press/Contact/Osama Yahya

Many companies say that they have not seen any significant impact yet. For example, retailer Target said that most of its products do not pass through the Suez Canal and that it is “confident in our ability to offer customers the products they want and need.”

BMW said: “All lights are green… our factory supplies are assured.” Norwegian fertilizer company Yara said it was “only slightly affected by traffic challenges on the Red Sea.”

Carlos Tavares, CEO of automaker Stellantis, has said: “So far, so good, things are progressing well.”

The relief may not last long. “If shippers avoid the Suez Canal for a year, that’s a big problem,” warned Flexport CEO Peterson. The rising costs will lead to “commodity inflation of 1 to 2%”.

UN shipping expert Jan Hoffman warned on Thursday that shipping blockages in the Red Sea pose a threat to global food security by slowing grain deliveries to parts of Africa and Asia, which depend on the sea. Wheat from Europe and the Black Sea region.

The cost of shipping a standard 40-foot container from Asia to Northern Europe has dropped from $1,500 in mid-December to about $5,500. Sina Schulte/dpa

It would be even worse if the conflict in the Middle East escalates and increases oil prices, which are now lower than they were the day before Hamas attacked Israel on October 7.

For now, companies are managing to make the mess.

The Free People subsidiary of retailer Urban Outfitters imports clothes from India and ships “a lot of stuff by air,” co-chairman Frank Conforti said at an investor conference this month. But keeping furniture and household items on a plane is very expensive.

At least household items aren’t as “fashion-sensitive” as clothing, Conforti said, so wasting 15 days “sailing around the end of Africa isn’t the end of the world.”


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