Red Sea Crisis Causes More Supply Chain Damage Than Early Pandemic, Warns Advisory Firm
The Red Sea crisis, sparked by recent U.S. and UK air strikes on Yemen, is causing significant disruptions to global shipping rates and supply chains. According to leading ocean supply chain advisory firm Sea-Intelligence, the impact of these disruptions is even greater than that of the early Covid-19 pandemic. The firm analyzed current vessel delays and compared them to delays over the past few years, revealing that the longer transit around the Cape of Good Hope, as ships divert from the Red Sea, is already having a more significant impact on vessel capacity than during the pandemic.
Alan Murphy, CEO of Sea-Intelligence, stated that the vessel capacity drop is the second largest in recent years, with the only event having a bigger impact being the incident involving the “Ever Given” cargo ship getting stuck in the Suez Canal for six days in March 2021. However, Murphy emphasized that the Red Sea crisis is even larger than the early pandemic impact. He explained that during the pandemic, all vessels were being used and demand was at historic highs, whereas today, new vessels are available for work.
One key difference between the pandemic period and now is the potential to bring vessel capacity back online. Traditionally, vessel capacity declines during the period that includes February’s Chinese New Year due to a decrease in container demand. However, Murphy noted that ocean carriers today have new vessels available for work, which was not the case during the pandemic when there was a shortage of vessel space.
Sea-Intelligence estimates that approximately 10% of the world’s fleet is currently not in service. Deploying additional vessels could help correct the imbalance in vessel availability and increase certainty in vessel schedules. Murphy anticipates that ocean carriers will add vessels into their rotation after the Chinese New Year, as it is in everyone’s interest to find a solution to the Red Sea crisis.
The delays in container arrivals are already impacting various companies’ supply chains. Tesla, Volvo, Michelin, Ikea, British retailer Next, and Crocs have all reported manufacturing halts or delays in product delivery. Steve Lamar, CEO of the American Apparel and Footwear Association, emphasized that threats to Red Sea shipping pose a threat to maritime commerce worldwide. He called for more action to ensure the safety of crews and security of cargo by eliminating existing or future threats entirely.
The diversions away from the Red Sea are not only affecting supply chains but also energy markets and product tanker operators. Longer transit times around the Cape of Good Hope could create a supply shortage of tankers. Shell and BP have already suspended shipments through the Red Sea. Several tanker operators and energy companies, including NYKK Line, Mitsui O.S.K. Lines, Reliance, ADNOC, Torm, Hafnia, Stena Bulk, BP, Frontline, Equinor, and Euronav, are choosing to avoid the area following recent warnings.
According to shipping analyst Bendik Folden Nyttingnes, product tanker rates are starting to rise after a period of decline in transits through the Red Sea. Some market participants are losing faith in a quick solution to the Houthi attacks, leading to vessels turning away from the area. Honour Lane Shipping estimates that the attacks in the Red Sea could last from six months to a year, despite U.S. counterattacks against the Houthis.
In conclusion, the Red Sea crisis is causing significant disruptions to global shipping rates and supply chains. The impact is even greater than that of the early Covid-19 pandemic. The longer transit around the Cape of Good Hope is already having a significant impact on vessel capacity. Deploying additional vessels could help alleviate the imbalance in vessel availability. The delays in container arrivals are affecting various companies’ supply chains, and the diversions away from the Red Sea are also impacting energy markets and product tanker operators. The situation calls for more action to ensure the safety of crews and security of cargo.
