WASHINGTON (AP) — Car factories in Belgium and Germany have shut down. A popular British department store has delayed its spring fashion line. A Maryland company that makes hospital supplies doesn't know when parts will arrive from Asia.
On top of pandemic-related port congestion and Russia's invasion of Ukraine, attacks on ships in the Red Sea are giving new shocks to global trade.
Yemen's Houthi rebels have attacked cargo ships plying the waters connecting Asia, Europe and the United States, forcing traffic around the Suez Canal and the tip of Africa in an effort to stop Israel's offensive against Hamas in the Gaza Strip. I'm keeping away from it. The disruption is causing delays and rising costs at a time when the world is still recovering from a resurgence in inflation.
“What we're seeing now is short-term disruption, and disruption leads to higher costs,” said Ryan Petersen, chief executive officer of supply chain management firm Flexport. “Every ship that is rerouted has 10,000 containers on board. We receive a large number of emails and phone calls to replan each container migration.”
What Petersen calls a “double whammy” is adding to the turmoil in the global shipping industry. Traffic through the Panama Canal, another important trade corridor, has been restricted by low water levels caused by the drought. And shippers are rushing to move goods before factories in China close for the Lunar New Year holiday from February 10 to 17.
The longer the war in Gaza drags on, the greater the threat will be. Petersen said a year of disruption to Red Sea trade could lead to a rise in inflation of up to 2%, adding to the pain at a time when the world is already struggling with soaring prices for things like food and rent. He said it was possible. That could also mean further rises in interest rates, weakening the economy.
Currently, Man & Machine in Greater Landover, Maryland, is waiting for shipments from Taiwan and Greater China. It was setback after setback for the company, which makes washable keyboards and accessories for hospitals and other customers.
Founder and CEO Clifton Blumand typically receives parts shipments about once a month, but the latest shipment, which left Asia four weeks ago, has been delayed. The normal route through the Suez Canal has been closed due to Houthi attacks.
A reroute to the Panama Canal also failed, and transportation was held up due to disruptions caused by the drought. Now, you might have to cross the Pacific Ocean to Los Angeles and then take a truck or train to Maryland. Broman doesn't know when the product will arrive.
“It's messy, and it's funny. I think our customers, everyone, understands. This is not like, 'Why didn't you plan this?' – Did anyone get it? “We call customers and say, “We're going to be late. Here's why.'' No one likes it, but it doesn't kill anyone, it's just frustration.''
Similar issues are occurring in other industries.
Electric car maker Tesla will have to close its factory near Berlin from Monday until February 11 due to shipping delays. Chinese-owned Swedish car brand Volvo idled its assembly line for station wagons and SUVs in Ghent, Belgium, for three days this month while waiting for critical transmission parts.
Production at Suzuki Motors' Hungarian plant was suspended for a week due to delays in procuring engines and other parts from Japan.
British retail chain Marks & Spencer has warned that new spring clothing and homeware collections scheduled for February and March could be delayed due to the disruption. CEO Stuart Machin said the Red Sea issue “affects everyone and is something we are very focused on”.
About 20% of clothing and footwear imported into the United States arrives via the Suez Canal, according to Steve Lamar, CEO of the American Apparel and Footwear Association. In Europe, the impact is even greater, with 40% of clothing and 50% of shoes passing through the Red Sea.
“This is a crisis with global implications for the shipping industry,” Lamar said.
As of January 19, nearly 25% of the world's shipping capacity has been or will be diverted from the Red Sea, adding thousands of miles and one to two weeks of sailing distance, according to Flexport.
The cost of shipping a standard 40-foot container from Asia to Northern Europe has soared from less than $1,500 in mid-December to nearly $5,500. It's even more expensive to transport Asian cargo to the Mediterranean, at nearly $6,800, up from $2,400 in mid-December, according to freight booking platform Freitos.
But things could get much worse. At the height of the supply chain backup two years ago, it cost $15,000 to ship a container from Asia to Northern Europe, and nearly $14,200 to transport a container from Asia to the Mediterranean.
“We're nowhere near what was happening during the pandemic in terms of supply chain disruptions,” said Katherine Russ, an economist at the University of California, Davis.
In 2021 and 2022, American consumers, excited by the coronavirus lockdowns, went on a spending spree, taking government relief checks and ordering furniture, sporting goods and other goods. Their orders overwhelmed factories, ports, and freight yards, causing delays, stockouts, and price hikes.
Things are different now. Shipping companies expanded their fleets in response to supply chain disruptions. They have more ships to deal with the impact.
“The market is in a state of overcapacity, which happens to be a good thing,” said Judah Levin, head of research at Freitos. There should be enough capacity to handle this disruption. ”
Global demand has also cooled, in part because the U.S. Federal Reserve and other central banks have raised interest rates to combat inflation, and in part due to the slump in the great Chinese economy. Examples include. Inflation has fallen over the past year and a half, but is still higher than the central bank wants.
“There are tremendous forces pushing inflation down,” said Russ, who served as a White House economic adviser in the Obama administration. “It's hard to imagine that[the Red Sea disruption]would significantly undo the decline in inflation that we're seeing by more than a tenth of a point in some places.”
Many companies say they have not yet seen a significant impact. Retailer Target, for example, said most of its products do not pass through the Suez Canal and is “confident in our ability to provide our customers with the products they want and need.”
BMW said, “All lights are green…Our factory supplies are safe.” Norwegian fertilizer giant Yara said: “The impact of the Red Sea transport problem was only mild.”
Carlos Tavares, CEO of automaker Stellantis, said: Things are going well. ”
The rest may not last long. Flexport CEO Petersen warned that if shippers avoided the Suez Canal for a year, “that would be a real disaster.” Higher costs would lead to “1% to 2% commodity inflation.”
United Nations shipping expert Jan Hoffmann said Thursday that the Red Sea shipping logjam risks global food security by slowing the flow of grain to Europe and parts of Africa and Asia that rely on wheat from the Black Sea region. warned that it would lead to
The situation will only get worse if the Middle East conflict escalates and oil prices rise. Oil prices are now lower than they were the day before Hamas attacked Israel on October 7th.
For now, companies are struggling.
Free People, a subsidiary of retailer Urban Outfitters, imports clothing from India, much of it “airfreighted,” co-president Frank Conforti said at an investor conference this month. However, it is too expensive to carry furniture and household items on a plane.
Conforti said losing 15 days “isn't the end of the world sailing around the tip of Africa” because at least household goods are not as “hipster” as clothing.
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Anderson reported from New York. AP Business Writer Kelvin Chan in London. Ann DiNosenzio of New York; Yuri Kageyama in Tokyo. Tom Krisher of Detroit; and David McHugh in Frankfurt, Germany contributed.
