The Red Sea Crisis continues to put pressure on consumer prices

The first footage of Houthi Rebels hijacking cargo ship Galaxy Leader on the Red Sea in November last year sent shockwaves throughout the trade world.

The coordinated attack against the ship, owned in part by Israeli billionaire Abraham Ungar was the beginning of a six month campaign by Yemeni militants terrorizing western vessels that use the route in response to Gaza’s conflict.

Since then, the campaign has escalated. Drones and missiles are targeting vessels along the main shipping route. The Houthis claim 107 attacks. Three seafarers were killed. This has led to a complete reorientation of global trade.

Traffic on the Suez Canal has dropped by 66% since April 1, compared to a year ago.

Several shipping companies are diverting their vessels to the longer, more expensive, and safer route that goes around the southern tip of Africa, past the Cape of Good Hope. It can take up to 10 extra days and cost 40% more in fuel.

However, the few ships which use this route remain under threat. Last week, shipping line Maersk stated that attacks have intensified and the risk area is now larger. Maersk has said that it will continue to send ships around Africa in the near future. However, this would lead to a 20% reduction in capacity and increased costs in the second quarter. It tripled the surcharge for containers traveling between Asia and Northern Europe last week from $250 to $700.

The crisis is continuing to impact companies of all sizes, from Maersk and small businesses in the UK to those in Asia and the Middle East.

In a survey conducted by the British Chambers of Commerce in February of its members who export, it was found that over half (53%) of retailers and manufacturers were affected by this crisis. Some companies reported that container hire prices had increased by 300% and delivery times were extended by four weeks.

The worst affected are manufactured goods, such as cars, textiles and furniture, from Asia. However, oil from the Middle East has also been impacted.

Around 70% of Europe’s auto parts are transported through the Red Sea by Asian shippers. Due to the disruption, carmakers such as Volvo or Tesla have had to suspend some production lines due to a shortage of parts. Vauxhall’s owner Stellantis announced that it would be using air freight to ship some parts to avoid the Red Sea.

Oil prices have not risen as much as initially anticipated, but the Middle East crisis and the oil price increase has been a factor. Prices rose from under $76 per barrel at the beginning of the year to nearly $84.

In spite of this, consumer costs have not increased significantly. John Stawpert is the environment and trade manager for the International Chamber of Shipping. He says that the crisis has demonstrated the resilience of the shipping industry. We haven’t seen the impact some predicted, especially in terms of inflation. We were only talking about 0.1 to 0.2% a few months back, which was a rounding mistake.

Marco Forgione is the director general of the Institute of Export and International Trade. He also notes that some companies are switching to rail freight. The number of trains departing China for Europe has increased dramatically in recent months.

William Bain is the head of BCC’s trade policy and believes that the impact of the disruption on the BCC will be determined by how long the disruption continues.

He says that companies will need to make decisions about sourcing and supply chain management. If this becomes a normality, they’ll have to decide if they can adapt to it or if it will be too difficult.

Businesses cannot expect the disruption to end anytime soon, as the Houthi leaders reiterated last week that their campaign would continue until the conflict in Gaza was resolved.