Consumers to foot the bill of Red Sea Disruption

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Shippers must adjust once again how goods are transported through the Red Sea following a series of recent attacks by Houthi rebels based in Yemen.

It’s just the latest in an ongoing string of disruptions to global supply chains and also comes just as pandemic-era supply chain disruption seemed to be in the rearview mirror. So what is the economic impact of this latest disruption?

Nearly 15% of global seaborne trade passes through the Red Sea—including 8% of global grain trade, 12% of seaborne-traded oil, and 8% of the world’s liquefied natural gas trade. And this week, it was announced that there have been a number of shipping companies suspending shipping through the Red Sea trade route amidst the attacks, including Maersk, Hapag-Lloyd, and the Mediterranean Shipping Company (MSC).

Many companies have begun to reroute ships south to sail around the Cape of Good Hope, but the diversion comes with a delay of two to four weeks to a round-trip voyage delay and added costs. According to Transporeon’s data, the price of container shipping from Asia to Europe has already increased by 300%.

While there are a range of options open to shippers, from using air cargo; modifying cargo loads; and using alternative routing options, these will likely impact shipping economics and vessel profitability. Ultimately, these costs will end up being passed down to businesses and consumers if goods are not delivered on time.

Bernhard Schmaldienst, Director of the Visibility Tribe at Transporeon, a Trimble Company, commented, “In today’s economic climate and with unexpected delays due to Houthi rebels, shippers need to invest in a smart transportation management platform with embedded visibility to mitigate additional costs being passed to consumers, while still keeping up with demand. With roughly 12% of total world trade and 30% of all global container traffic travelling through the canal every year (about $1 trillion in cargo), this is a critical waterway.

Therefore, shippers should weigh up their options to get their cargo to its intended destinations on time to keep up with consumer demand. As the Red Sea’s situation will not improve over the next fortnight, strategic and agile planning will become even more crucial in order to deliver goods on time.”