Recent developments in the Red Sea are causing disruptions in global trade, leading to concerns across various industries, particularly the food and beverage sector. The Red Sea serves as a vital trade route, handling approximately 12% of all global trade.
The ongoing attacks by the Houthi movement, based in Yemen and backed by Iran, on cargo ships in the Red Sea en route to the Suez Canal have created a challenging situation. While these attacks initially targeted vessels heading for Israel in protest against Israel’s actions in Gaza, they have become increasingly indiscriminate.
In response, the US and the UK have launched airstrikes on Houthi sites in Yemen. However, as of the time of this report, the threat to commercial shipping using this route persists.
Impact on the Food and Beverage Sector The disruptions in the Red Sea are not without consequences for global trade. Several companies in various sectors are already feeling the effects. For instance, electric car manufacturer Tesla temporarily halted production at its Berlin factory due to delays in receiving crucial parts resulting from the attacks. UK clothing retailer Next has also expressed concerns about potential delays in the supply of its products due to attacks on container ships in the region.
The food and beverage sector is particularly attentive to these developments due to previous experiences with supply chain disruptions. For example, Russia’s blockade of Black Sea ports following its invasion of Ukraine in February 2022 significantly impacted the supply chain for ingredients like wheat and edible oils, contributing to the high inflation levels experienced in the sector.
The Red Sea and the Suez Canal play a pivotal role in global trade, handling a significant portion of goods. It is estimated that the Red Sea handles 12% of global trade, while the Suez Canal accounts for nearly one-third of the world’s container traffic. As ships are now being rerouted to travel approximately 3,500 extra nautical miles around the Cape of Good Hope in South Africa, concerns arise regarding potential increases in fuel costs, delays, and potential spoilage of goods.
Ships using the Red Sea are also facing higher insurance costs and increased crew salaries, reflecting the increased risks of navigating through the region.
As a result, businesses in the food and beverage sector that rely on supplies via the Red Sea are expected to face higher costs in terms of energy, chemicals, and packaging. Oil prices have already seen a 4% jump following US and UK airstrikes in Yemen.
Expert Opinions Financial services group ING has noted that the escalating tension in the region poses supply risks, with energy markets being particularly vulnerable. ING also reported a significant decrease in the number of ships taking the Red Sea route in January compared to the previous year.
Maersk, a Danish shipping giant, announced the suspension of sailings through the Red Sea, citing increased inflationary pressures on costs and consumers in Europe and the US.
Drewry, a maritime research and consulting group, reported a 15% increase in the cost of a 40ft container in its most recent update, with a 44% price increase compared to the same week the previous year.
Immediate Impact and Concerns While there is no widespread panic in the food and beverage supply chain, industry leaders are closely monitoring the situation. Helen Dickinson, CEO of the British Retail Consortium, acknowledged potential delays in the supply of products originating from the Far East. She mentioned that while some goods may take longer to ship through alternate routes, it is unlikely to affect food imports, which mainly enter via the EU. However, she cautioned about possible impacts on availability and prices due to increased transportation and shipping insurance costs.
Italian farmers’ organization Coldiretti expressed concerns about the impact on Italy’s exports of fruit and wine to Asian destinations. EastFruit also pointed to significant challenges in the international fruit import-export trade, particularly between Europe, North Africa, Asia, and the Middle East.
Overall, industry watchers are closely observing the situation, and many companies are exploring alternative trade routes or sources for supplies to mitigate potential disruptions. The evolving nature of the crisis requires adaptability and vigilance in the global supply chain.
Stay current with supply chain news on The Supply Chain Report. Free trade resources are available at ADAMftd.com.
#RedSeaTradeDisruptions #GlobalTrade #FoodAndBeverage #SupplyChainChallenges #HouthiAttacks #SuezCanal #ShippingRoutes #Maersk #Tesla #Next #Coldiretti #Drewry #ING #TradeRoutes #FuelCosts #InflationaryPressures
