February 27, 2024

Brighton Journal

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Houthi attacks in Red Sea keep global economy in suspense: Concerns grow over impact on industries

Houthi attacks in Red Sea keep global economy in suspense: Concerns grow over impact on industries
Houthi attacks in Red Sea keep global economy in suspense (REUTERS)

Car factories are idle Belgium And Germany. Spring fashion lines are late at the popular British department store. A company Maryland When to expect parts from Asia manufactures hospital equipment.

Attacks on ships in the Red Sea have caused another shock to world tradeThis adds to port congestion related to the pandemic and the Russian invasion of Ukraine.

Houthi rebels in Yemen to stop Israel's attack on Hamas in Gaza Attack on cargo ships It navigates waterways connecting Asia with Europe and the Americas, taking traffic from the Suez Canal and skirting the tip of Africa. At a time when the world has yet to overcome a rebound in inflation, the disruption is causing delays and raising costs..

“What's happened now is short-term confusion, and confusion leads to increased costs,” said Ryan Peterson, CEO of supply chain management firm Flexport. “Each diversion ship has 10,000 containers. “A lot of emails and phone calls are made to reschedule each of those container trips.”

Adding to the chaos in global shipping, Peterson calls it “double whammy”: Passing through another important trade corridor, the Panama Canal, controlled by low water levels caused by drought. Exporters are rushing to move goods before Chinese factories close for the Lunar New Year holiday from February 10 to 17.

Tribesmen loyal to the Houthis walk with American and Israeli flags in Yemen's Bani Husayh, amid escalating tensions with the US-led coalition in the Red Sea, where a new tribal recruitment drive took place (REUTERS/Khaled Abdullah)

The threat increases significantly as the war in Gaza continues. A year-long disruption in Red Sea trade could push commodity inflation up to 2%, Peterson says, adding to the pain as the world already struggles with rising grocery prices, rents and more. It could also mean higher interest rates that weakened the economy.

Currently, Man & Machine in Greater Landover, Maryland is awaiting shipments from Taiwan and Greater China. The company, which makes washable keyboards and accessories for hospitals and other customers, has faced setback after setback.

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Founder and CEO Clifton Brumond typically receives a shipment of parts once a month, but the latest delivery, which left Asia four weeks ago, was delayed. The normal, three-week route through the Suez Canal has been shut down by Houthi attacks.

Panama Canal diversion not working: Drought-related disaster disrupts shipping Now, you have to cross the Pacific to Los Angeles and come to Maryland by truck or train. Broumand doesn't know when the products will arrive.

“It's annoying and interesting. I think our customers, all of them, understand that. It's like, 'Why not plan this?' It's not like, who knows?” said. “We called our customers and told them, 'Hey, it's going to be late. That's why it's happening,'” he said. “Nobody likes it, but it's not going to kill anybody, it's just another disappointment.”

The normal, three-week route through the Suez Canal has been blocked by Houthi attacks. EFE/EPA/Khaled Elfiqui

Other industries are facing similar problems.

Electric car manufacturer Tesla The nearby factory should be closed Berlin Monday to February 11 due to shipping delays. A Swedish car brand owned by China Volvo disabled its assembly line GentBelgium, it manufactures trucks and SUVWhile waiting for the main part to air for three days this month.

Production in a plant Suzuki Motor Corp. of Hungary Delayed in getting engines and other parts from Japan has been halted for a week.

British retail chain Marks & Spencer has warned it will delay its new spring clothing and homeware collections in February and March. Chief executive Stuart Machin said: The Red Sea problem “affects everybody, it's something we're very focused on.”

About 20% of apparel and footwear imported into the U.S. 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 threat increases significantly as the war in Gaza drags on.

“This is a crisis with global implications for the shipping industry.”Lamar said.

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As of January 19, Flexport says nearly 25% of global shipping capacity is either at capacity or being diverted from the Red Sea, adding thousands of miles and a week or two of sailing.

The cost of shipping a standard 40-foot container from Asia to northern Europe has risen from $1,500 in mid-December to nearly $5,500. Carrying Asian cargo to the Mediterranean is still more expensive: nearly $6,800, up from $2,400 in mid-December.According to Freightos freight booking site.

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

“In terms of supply chain disruptions, we're nowhere near what happens during a pandemic.”said Kathryn Russ, an economist at the University of California, Davis.

British oil tanker 'Marlin Luanda' attacked by Yemeni Houthis. Indian Navy

In 2021 and 2022, American consumers, frenzied by the COVID-19 shutdown and government relief checks, ordered and spent on furniture, sports equipment and other items. Their orders overwhelmed factories, ports and freight yards, causing delays, shortages and high prices.

Things are different now. After that supply chain chaos, shipping companies expanded their fleets. They have more ships to deal with accidents.

“The market is over-capacity”“This turns out to be a good thing,” said Judah Levine, head of research at Freightos. “Capacity should be sufficient to accommodate this disruption.”

Global demand has also cooled as the U.S. Federal Reserve and other central banks have raised interest rates to fight inflation and China's powerful economy falters. Inflation has eased over the past year and a half, although it is still higher than central banks would like.

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“There are really big forces driving inflation down,” said Russ, who was a White House economic adviser in the Obama administration.

“This is a crisis with global implications for the shipping industry.” Europa Press/Contact/Osamah Yahya

Many companies say they have yet to see a significant impact. Retailer Target, for example, said most of its products do not go through the Suez Canal and that it is “confident in our ability to provide the customer with the products they want and need.”

BMW said: “All lights are green… our factory stuff is confirmed.” Norwegian fertilizer company Yara said it was “slightly affected by transport challenges in the Red Sea”.

Carlos Tavares, CEO of automaker Stellandis, said: “So far, things are moving well.”

The break may not last. If shippers avoid the Suez Canal for a year, warned Flexport CEO Petersen, “that's a big problem.” Rising costs will lead to “commodity inflation of 1 to 2%”.

UN Shipping expert John Hoffman warned on Thursday that ship sludge in the Red Sea could endanger global food security by reducing grain supplies to sea-dependent parts of Africa and Asia. Wheat from Europe and the Black Sea region.

The cost of shipping a standard 40-foot container from Asia to northern Europe has risen from $1,500 in mid-December to nearly $5,500. Sina Schulte/TBA

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

For now, companies manage the chaos.

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

At least home goods aren't as “fashion sensitive” as clothes, so wasting 15 days “cruising around the tip of Africa isn't the end of the world,” Conforti said.