Recent attacks on cargo ships in the Red Sea are adding another layer of complexity to the already strained global supply chain due to COVID-19. The assaults, attributed to Yemen-based Houthi militants, are forcing ships to divert from the Suez Canal, significantly impacting trade routes connecting Asia with Europe and the United States.
The disruptions are compounding existing challenges such as pandemic-related port logjams and the Russia-Ukraine conflict. Ryan Petersen, CEO of supply chain management company Flexport, describes the current situation as “short-term chaos,” leading to increased costs and logistical challenges.
Ship rerouting
The attacks have prompted ships to reroute around the tip of Africa, causing major delays and cost escalations. To aggravate further, all of this comes at a time when the world – especially the West – is grappling with a resurgence of inflation.
Various sectors are experiencing the repercussions of these disruptions. Electric carmaker Tesla is temporarily shutting down its Berlin factory due to shipment delays, while Volvo and Suzuki have faced production stoppages in Belgium and Hungary, respectively, because of delays in receiving key components.
Shipping containers surged
The cost of shipping containers from Asia to Europe has surged significantly. A standard 40-foot container’s shipping cost from Asia to northern Europe has risen from less than USD 1,500 in mid-December to nearly USD 5,500, according to Freightos. Getting Asian cargoes to the Mediterranean is even costlier: almost USD 6,800, up from USD 2,400 in mid-December. Delays and rerouting have contributed to the rise, with around 25% of global shipping capacity being diverted from the Red Sea, according to Flexport.
Costlier journeys
Global shippers are forced to make costlier journeys, and companies are under pressure to review their supply chains to adapt to this new normal of longer transportation distances. The UN shipping expert Jan Hoffmann has raised concerns about potential impacts on global food security, particularly in regions dependent on wheat from Europe and the Black Sea.
In response to the ongoing threats, the European Union has tentatively agreed to deploy ships to the Red Sea to protect commercial vessels from Houthi attacks. Asian countries, including Singapore, have also pledged to participate in operations to secure the vital sea route.
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Source : Logisticsinsider
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