Exporters are investigating cargo aircraft as a means of escaping the worsening Red Sea congestion.
Exporters are investigating cargo aircraft as a means of escaping the worsening Red Sea congestion.
Written by Corina Pons, Helen Reid, and Jonathan Saul
December 20, LONDON/MADRID (Reuters) - Due to a spate of attacks in the Red Sea, exporters are frantically trying to find other air, land, and sea routes to bring toys, clothes, tea, and car parts to shops. This chaos is affecting freight supply networks worldwide.
Since November 19, Iran-backed Houthi terrorists in Yemen have increased their attacks on ships in the Red Sea as a show of support for Hamas amid Israel's military campaign in Gaza.
A vital commercial route that uses the Suez Canal to connect Europe, North America, and Asia has been hampered by the attacks. As businesses look to transfer goods via alternate, frequently longer ocean routes, container shipping costs have increased—more than tripling in some cases.
According to a survey by S&P Global, the consumer products industry, which supplies major global retailers like Walmart and IKEA, will be most affected if there are prolonged interruptions.
Teams led by OL USA CEO Alan Baer advise shipping and logistics companies to get ready for at least ninety days of disruptions from the Red Sea.
"It doesn't help that it's Christmas weekend," Baer stated. "We'll have a quiet period from now until Jan. 2, and then everybody will be frenetic."
Fast-moving businesses are already attempting to transition to "intermodal transport," which encompasses two or more modes of transportation, according to Jan Kleine-Lasthues, chief operating officer of Hellmann Worldwide Logistics, a renowned German freight forwarder, about air freight.
According to Hellmann, there is a growing need for integrated air and sea routes for consumer goods including clothing, electronics, and IT products. For instance, it might entail initially shipping the items to a port in Dubai, where they are subsequently loaded aboard aircraft.
"This alternative route allows customers to avoid the danger zone in the Red Sea and the long voyage around the southern tip of Africa," said Kleine-Lasthues to Reuters.
Although air freight is an option for businesses transferring urgent or crucial goods, Paul Brashier, vice president of Drayage and Intermodal for supply chain organization ITS Logistics, noted that it is not a cost-effective alternative.
According to Brian Bourke, global chief commercial officer at SEKO Logistics, moving goods by air is approximately five to fifteen times more expensive than sending them by sea, where container shipping rates are still very cheap.
More shippers will turn to air shipping if it takes twice as long to get goods to shelves, especially for expensive items like high-end electronics and designer clothes, according to Bourke, who has already fielded questions from consumers.
PRIMARY TRADE ROUTE
As per Corey Ranslem, CEO of British marine risk consulting and security company Dryad Global, over 35,000 vessels traverse the Red Sea region every year, transporting goods between Europe, the Middle East, and Asia, accounting for approximately 10% of the world's Gross Domestic Product.
The channel is essential for supplying U.S. retailers such as Walmart (WMT.N), Target (TGT.N), Macy's (M.N), and Nike (NKE.N), who source everything from electric toothbrushes and cotton sheets from India to shoes from China and Sri Lanka.
"Under an extended threat you will see the price of fuel and goods into Europe increase substantially because of the increased costs of diverting around Africa which can add roughly 30 days to a transit depending on the arrival port," Ranslem stated.
Tailwind carrying Lines, a division of the German bargain store giant Lidl, said it was now carrying goods around the Cape. Tailwind Shipping Lines distributes non-food items for Lidl as well as goods for clients.
"Our aim is to remain as close to our schedule as possible," added the statement.
The United States is assembling a new multinational navy alliance with the goal of stabilizing the region, but shipping corporations are unaware of this.
Shipping companies were informing consumers that a lot depended on the U.S.-led task force's ability to stop more attacks and restore safety to the route, according to a Spanish fashion sector source who spoke with Reuters.
According to the industry source, it is imperative that European businesses be able to use the Suez Canal once more in order to guarantee supplies of clothing from Asia.
Shippers have additional challenges as a result of the timing of the Red Sea security issues, according to Jeb Clulow, a partner in Reed Smith's transportation sector practice.
Due to the extreme drought, fewer ships are being allowed to sail through the Panama Canal. Furthermore, there is a rush to get items into transportation before manufacturing closures for the Chinese New Year, which are scheduled for February 10–17, cause supply disruptions that could last up to a month.
Large container ship owners, however, have started tacking on extra costs, such as emergency surcharges, for goods impacted by the disturbances in the Red Sea.
The French shipping company CMA CGM imposed surcharges for goods traveling to and from Red Sea ports in a customer letter on Wednesday. The rates are $1,575 for a 20-foot container, $2,700 for a 40-foot container, and $3,000 for chilled containers and specific equipment.
Editing by David Gregorio, Stephen Coates, and Michael Perry; reporting by Jonathan Saul and Helen Reid in London, Corina Pons in Madrid, Lisa Baertlein in Los Angeles, and Katherine Masters in New York
Source reuters.com
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