The Red Sea Crisis – Expert Commentary

Q: What’s the latest issue for manufacturers and retailers from the Red Sea crisis?

A: We are continuing to see freight carriers using the crisis to increase their profit margins. Whilst insurance, fuel and other costs have increased the rates they are charging include pretty clear margin increases.

Importers need to be live to that, keep an eye on market rates for shipping and be prepared to negotiate or shop around.

War risk insurance for vessels using the Red Sea has increased substantially.

Q: Has industry been caught off guard by the Red Sea crisis

 A: The contingency planning that businesses have undertaken means that the situation is far less chaotic than it could have been. A lot of lessons were learnt from the supply chain problems caused by COVID and the “Ever Given” Suez crisis.

Q: Which industries are more heavily impacted?

A: The struggle at the moment is with the increase in costs rather than a lack of availability of shipping capacity but there are some exceptions.

The petrochemicals industry is very reliant on the oil shipments that normally go through the Suez Canal.

The fashion industry has a very high seasonality. Retailers should be receiving their summer clothing lines about now and delivery delays are causing them difficulties.

Electronics, furniture and DIY goods will be impacted.

Q: What about food prices?

 A: A number of car manufacturers have already gone on the record explaining that they have already got through their stock of components.

Wine deliveries from Australia and New Zealand will be impacted and some foodstuffs like coconut milk, exotic fruits and spices may face delays. Overall, a low percentage of UK food travels the impacted route, so there are no concerns over food security.

However, the increase in oil & gas prices will have a knock-on impact for food manufacturers.

Q: Why can’t industry just keep higher levels of stock?

A: The ability to increase inventory levels depends on your profit margins. Lower margins make it more difficult to keep higher stock levels, as this comes at an extra cost. Shifting too far away from “just in time” is not practical for many industries without damaging profitability.