AuthorCary Wong, RUSCA Blog Committee Over the last few months, the Israel-Hamas conflict in the Gaza Strip has been at the top of news headlines around the world. The war has undoubtedly had many harmful humanitarian effects on society, as countless lives have been lost or altered by the violence. Meanwhile, recently, an Iran-backed rebel group from Yemen called the Houthis has been attacking and disrupting ships traveling through the Suez Canal and the Red Sea. The Houthis consider Israel to be their enemy, and although they originally claimed to only be targeting Israeli ships, they have increased their attacks to include ships with no connection to the country. These attacks have so far resulted in catastrophic effects on global supply chains and economies, and experts believe that they will continue and even worsen over the next few months.
The stabilization of the Red Sea is extremely important for international supply chains, as about 12% of global trade passes through it, including 30% of global container traffic (Yerushalmy). The Suez Canal represents a vital passageway for ships because it serves as a connection from Europe to Asia and East Africa. Out of caution and due to the threat of danger, many shipping companies, including some of the largest like Maersk, Hapag-Lloyd, and MSC have chosen to reroute their vessels to alternate routes. This is unfortunately resulting in major delays in the supply chains, as no other route is nearly as efficient. As an adjustment, many companies have opted to send their ships around the southern tip of Africa as it is way less risky. However, this choice increases travel by more than 30%, resulting in higher fuel costs and the loss of valuable time (Robbins). According to Kpler’s ship tracking director Jean-Charles Gordon, it is estimated that “vessels managed or chartered by Shell that are being rerouted via the Cape of Good Hope can expect an approximate 10-day delay in their estimated time of arrival” (LaRocco). Aside from the delays that have been caused by the conflict in the Red Sea, costs of shipping have also dramatically increased due to the uncertainty. Over the last couple of weeks, the price of shipping a 40-foot freight container from Asia to Europe has soared to more than $6,000, which is almost triple the price from a month ago (Cingari). These rising prices are significant and impactful to global economies, as they can largely affect inflation. According to a recent IMF study, “import prices were responsible for 40% of the overall changes in the European consumer inflation in the past two years” (Cingari). This crisis in the Red Sea has been a major issue for shippers and their supply chains across the globe. Unfortunately, experts predict that the conflict may not be solved for at least 3 months, and attacks may even worsen. For companies, the challenge is to figure out how to navigate and survive this crisis with their supply chain and logistics management departments. Sources https://www.cbc.ca/news/business/armstrong-houthi-shipping-supply-chains-1.7086745 https://www.euronews.com/business/2024/01/24/inflation-risk-as-red-sea-attacks-send-shipping-costs-sky-high https://www.cnbc.com/2024/01/17/what-a-prolonged-red-sea-crisis-means-for-inflation-and-world-economy.html https://www.theguardian.com/business/2023/dec/19/red-sea-shipping-crisis-bp-oil-explained-what-is-happening-and-what-does-it-mean-for-global-trade https://www.eisneramper.com/insights/manufacturing-distribution/red-sea-supply-chain-disruptions-0124/#:~:text=Impact%20on%20U.S.%20Businesses,chain%20operations%20throughout%20this%20area. |
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April 2024
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