How are the Attacks on the Red Sea Hurting the Global Supply Chain?

Since November 2023, a series of missile, drone, and hijacking attacks of the Houthi rebels in the Red Sea have prompted the largest diversion of international trade in decades. This has resulted in increased costs for shippers across regions as distant as Asia and North America. 

Prolonged disruption on the horizon 
Safety is still not guaranteed
Oil and gas supply has not been affected dramatically 
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As of March 2024, ship traffic through the southern Red Sea has plummeted by approximately 70 percent compared to early December last year, with container shipping witnessing a staggering 90 percent decrease and gas tanker transit nearly halting altogether. The widespread disruption is escalating, prompting concerns of wider economic repercussions.

According to Flexport, over 500 container ships, typically navigating through the Red Sea en route to and from the Suez Canal, have now altered their routes, adding approximately two weeks to their journeys to circumnavigate the Cape of Good Hope at the southern tip of Africa. This accounts for roughly a quarter of the world’s container shipping capacity, as reported by the digital logistics platform.

Shipping companies, along with oil carriers, are anticipating the disruption to persist for several months or longer, with vessels scheduled for the extended route already booked well into the summer. Consequently, businesses are seeing increased inventory tied up during transit and are preparing for potential container shortages. Manufacturers of cargo containers are operating at full capacity, as reported by Container xChange, an online industry platform. Ports, including those in Halifax, Nova Scotia, are experiencing delays in ship arrivals and higher expenses.

Customers are responding to these challenges by adjusting their operations. Volvo Car AB and Tesla Inc. have announced production halts at European plants due to difficulties in sourcing components from Asian suppliers. British retailers such as Tesco Plc and Marks & Spencer Group Plc have highlighted concerns about rising costs. Maersk, the second-largest container carrier, recently cautioned that disruptions are likely to persist for several months.

Even after over three months of a large-scale naval policing operation, Flotilla Commander Admiral Marc Miguez, acknowledges that the US and its allies still have more work to do in addressing the threat posed by the Houthi militants. 

Admiral Miguez highlights a slowdown in Houthi attacks and a transition from cruise missile attacks to less-dangerous drones as signs that the naval operation is gradually wearing down the group. However, this offers little reassurance to shipping companies, with Rolf Habben Jansen, CEO of Hapag-Lloyd AG, emphasizing the paramount importance of safety for their personnel. In light of ongoing security concerns, shipping companies are hesitant to navigate through the Red Sea until safety can be guaranteed.

Despite hopes for easing disruptions in the coming months, concerns persist about the longevity of the Red Sea turmoil, with some industry figures fearing it could extend into 2025. Abercrombie & Fitch Co. revoked its prediction of reduced freight costs for the year due to the Red Sea disruption.

Most Middle East crude destined for the US Gulf Coast circumvents the Suez Canal due to large tanker sizes. China, a major trading nation heavily reliant on Middle Eastern crude imports, has avoided involvement in the Red Sea conflict. The disruptions in the Red Sea highlight ongoing vulnerabilities in the global supply chain, prompting caution from experts like Josh Lipsky regarding the need to address such risks comprehensively.

Is your business impacted by the ongoing disruption in the Red Sea? We recognize the significant impact this can have on your operations and profit. That’s why, at TFI, we provide a variety of customized global freight solutions designed to meet your specific requirements and deadlines.

Reach out to our team of experts today to explore how we can help you achieve your objectives despite the instability in the Middle East region!