Yahoo Finance World faces second wave of disruptions from Red Sea crisis, warns shipping giant
The world must brace for a second wave of trade disruptions from the Red Sea crisis even after the conflict has been resolved, the boss of a shipping giant has warned.
Delays could last for months even after Houthi attacks on ships passing through the Bab El-Mandeb strait have stopped, according to Cameron Bowie, UK managing director at Hapag-Lloyd.
It is the latest sign that the crisis could keep inflation higher for longer as higher shipping costs filter through the world economy.
Mr Bowie said: “Even after we’re able to resume going through the Suez Canal, we will have vessels in the wrong place, we will have equipment in the wrong place, we will have challenges to try and get the vessels back into their normal operating rhythm. That is the second wave of concern that we need to manage.
“That will not happen in one or two months. It could certainly be more than that.
“I don’t think any of us can really predict when normality will return. It is a very challenging and very desperate situation at the moment.”
Hundreds of ships have been rerouting around the Cape of Good Hope since Iran-backed rebels ramped up attacks on commercial ships passing through the narrow shipping channel in mid-December.
The Houthis have carried out more than 30 attacks on commercial ships, sparking an international naval response and retaliatory missile strikes from the US and UK. The Houthis say the attacks are in response to the Israel-Hamas war.
Hapag-Lloyd operates the fifth-largest fleet of container ships in the world, with nearly 7pc of all container ship capacity, according to Alphaliner, the shipping data provider.
It was one of the first major shipping companies to announce it was suspending transits through the Red Sea in mid-December, alongside Maersk and MSC, and has now rerouted roughly 45 ships around the Cape of Good Hope.
Hapag-Lloyd held firm in its decision to avoid the Red Sea even after the announcement of the US-led naval escort Operation Prosperity Guardian.
The US-led military intervention announced before Christmas was supposed to offer safe passage for ships. Maersk announced it would relaunch transits through the Red Sea at the end of December. Hapag-Lloyd said it was still “too dangerous”. Days later, another Maersk ship was attacked and the company suspended all transits again indefinitely.
“I think it’s very difficult to guarantee safe transit even with a military escort,” says Bowie. “It was just a risk that we were not willing to take. I don’t think that there can be a foolproof protection in the current environment.”
Since then, the disruptions have spread to the energy sector with a wave of tanker companies, including Shell and QatarEnergy, suspending transits indefinitely.
Bowie says there is unlikely to be any change to the disruption in the short-term. “We look at it weekly and we make decisions on a weekly basis. Trying to plan much further forward than that is just really very, very difficult to do,” he adds.
Ships travelling through the Bab El-Mandeb strait are on transit to or from the Suez Canal, the conduit which accounts for 12pc of global seaborne trade. The diversions around South Africa are adding 10 to 14 days to delivery time for goods, while also causing shipping costs between Europe and Asia to soar by 170pc, industry data shows.
Rerouting has sent Hapag-Lloyd’s fuel bill soaring. “We’re looking at two digit millions of dollars per month,” says Bowie.
“It’s not just the fact that these ships are going a longer route, but it’s also the fact that these ships are going quicker because they’re also trying to make up time.”
In November, 78pc of container ships travelling from Asia to Europe went via Suez, according to S&P Global Market Intelligence. By the first week of January, this had plunged to zero.
Shipping container imports to Europe via the Red Sea in December were down by a fifth year-on-year, according to Dun & Bradstreet analysts.
Shops including Next and Ikea have warned over potential delays to furniture and clothes, while Sainsbury’s has said the disruptions could affect wine deliveries from new world countries such as Australia and New Zealand.
While cargo flows are still moving, ships are just taking longer to arrive, says Bowie.
For now, it is manufacturers, which operate on tight time schedules with lower inventory levels, who are most exposed to delays, says Bowie.
Car makers Tesla and Volvo have already been forced to suspend production at some European factories because of delays in deliveries.
Rerouting ships means they need to be on the water for longer, which has reduced overall capacity. Hapag-Lloyd has been chartering vessels outside its fleet to plug the gaps.
Delays to shipping are also causing disruptions to the supply chain of shipping containers, says Bowie. “The ships are running with a bit of a lag. What we’re seeing is that lag is also creating a challenge for us with our containers. Containers are in the wrong place at the wrong time.”
Hapag-Lloyd has bought and hired more containers to ease these shortages, but there is a shortage across the wider market, says Bowie. Port delays are causing problems across the industry.
“Everything that we do is tied very much to individual ports with individual berthing windows on specific days and specific times,” he adds. “If you fall outside of those berthing windows, then it becomes very difficult to slot the vessel in.”
Even if the ship is there, the containers it needs to travel might not be.
“There are other cases where shipping liners have got containers in the ports, but the ships aren’t there,” says Bowie.
But the situation is nowhere near the chaos seen during the pandemic supply chain crisis. Freight costs are still just a fraction of the costs they were at the height of the Covid breakout.
Covid was a more extreme scenario because the supply chain snarl-ups hit just as demand for goods such as furniture rocketed, Bowie says.
This time around, Western consumers are still reeling from the cost of living crisis and are spending less on consumer goods.
“I’d like to think that there is very little impact to the actual retailer and to the end consumer,” says Bowie. “But a lot depends on how much longer this continues.”
At the same time, the shipping industry is also grappling with other problems.
Water shortages in Panama mean traffic through the Panama Canal, another shipping choke point, which channels around 5pc of global maritime trade, has more than halved.
Trade on riverways such as the Amazon, the Rhine and the Mississippi has also been massively hampered by low water levels.
“People think that stuff just magically appears on their shelves,” says Bowie. “Well, it doesn’t. It comes with massive investments, it comes with many different aspects of the supply chain, and we are just one part of that.”
