It’s been a while since the Yemen Houthi rebels started firing ships in the Red Sea on their way to the Suez Canal. With no end point in sight, it is expected that the effects will be felt in the following weeks and months. In this blog post, we will explain what currently going on in the Red Sea, and how it might affect global trade and supply chains.

What is the issue with the Red Sea?

In response to the Hamas-Israel war, on November 2023 the Houthi rebels in Yemen, an Iranian-backed proxy terrorist group, launched attacks on ships on their way to the Suez Canal. The attacks include missiles, drones, and hijacking attacks against civilian trade ships, usually owned by the UK and the US.

It’s important to understand that 15% of global trade moving through the Suez Canal of the Red Sea. This includes gas, oils, and general consumption commodities. Also, nearly 30% of global container shipping navigates through the Suez Canal, on their way, mainly from Asia to Europe and the US.

As a result of these attacks, many vessels have to reroute, which of course comes with an additional fuel cost, and an extra 15 days in the sea.

How it will affect the global trade and supply chain

Although several responsive attacks were initiated by the UK and US in Yemen, the Houthi hostility does not seem to end anytime soon. Thankfully so far many retailers reported they are not enduring any extreme effects yet, but in the coming weeks and months, we can expect to endure quite a burden. Here are the expected struggles to watch out for:

Delays

Since container ships cannot reach the Suez Canal safely, more and more cargo vessels will have to take longer routes which will result in delays for retailers. This will affect mainly retailers that source the majority of their stock from China, India, and Asia in general.

Also, if every ship has to go on a longer route, we might end up with fewer containers available, leading to possible extra delays.

Higher costs

As expected, the Red Sea situation is causing a surge in shipping costs. Reports indicate that standard shipping prices have soared by 329% since the disruption began in the crucial Red Sea shipping route back in November. Furthermore, if vessels are compelled to reroute, there will be an additional increase in fuel costs.

Consequently, we anticipate a rise in prices for numerous goods, potentially impacting sales.

Meeting sustainability goals will be challenging

Another challenge expected due to the Red Sea crisis is meeting sustainability goals. Many shipping companies and retailers are required to comply with sustainability regulations and reduce their Scope 3 emissions. With sustainability becoming even more important this year, it adds extra pressure to the disrupted supply chain.

How to prepare

While it’s impossible to predict how things will unfold, there are some steps every business can take to stay on the safe side.

Plan and buy early

Initiate your planning, production, and shipping processes well in advance to build in sufficient buffer time for potential delays and unforeseen challenges. This proactive approach will enhance your preparedness and resilience in the face of uncertainties.

Nearshoring when possible

If possible, consider nearshoring parts of your stock. This provides a backup in case shipments face challenges in arriving and may even lead to potential cost reductions.

Asos and Boohoo have already announced their nearshoring plans. By sourcing more from countries like Turkey and Morocco, as well as within the UK. This strategy helps them sidestep extended lead times and higher costs linked to rerouting from Asia.

Invest in technology

Explore technological solutions for managing your assets. This not only enhances the usability of your existing resources and inventory but also ensures improved planning for the future.

Adopting technology can enhance operational efficiency, minimize shrinkage, lower operational costs, and ultimately enhance the overall health of the business which is so important in unstable times.

In conclusion, the ongoing crisis in the Red Sea poses a significant threat to global trade and supply chains. The attacks on ships heading to the Suez Canal have led to reroutes, causing delays and a surge in shipping costs. As the situation persists, businesses can anticipate challenges such as delays, higher costs, and difficulties in meeting sustainability goals.

To navigate these uncertainties, proactive measures like planning and buying early, nearshoring when possible, and investing in technology can enhance preparedness and resilience. Businesses must remain adaptable in the face of the evolving Red Sea crisis and its potential repercussions on global economic trends.