How attacks on ships in the Red Sea may affect what you buy

WASHINGTON (AP) – Car factories in Belgium and Germany have stopped working. Spring fashion collections at a preferred British department store are delayed. A Maryland hospital supply company doesn’t know when to expect parts from Asia.

Attacks on ships in the Red Sea represent one other shock to global trade, on top of pandemic-related port congestion and Russia’s invasion of Ukraine.

Houthi rebels in Yemen, searching for to halt Israel’s offensive against Hamas in Gaza, are attacking cargo ships plying the waters connecting Asia with Europe and the United States, forcing the movement away from the Suez Canal and around the tip of Africa. Disruptions are causing delays and rising costs – at a time when the world has yet to beat a resurgence in inflation.

“What has happened now is short-term chaos, and chaos drives up costs,” said Ryan Petersen, CEO of supply chain management company Flexport. “There are 10,000 containers on each diverted ship. Many emails and phone calls are being made to re-plan each container trip.”

Adding to the confusion in global shipping is what Petersen calls a “double whammy”: passage through one other key trade corridor – the Panama Canal – is restricted by low water levels brought on by drought. And shippers are rushing to move goods before Chinese factories close for the Lunar New Year holiday from February 10-17.

The threat increases significantly as the war in Gaza drags on. A yearlong trade disruption in the Red Sea could push commodity inflation up by as much as 2%, Petersen says, adding to the pain at a time when the world is already grappling with higher prices for groceries, rents and more. It could also mean even higher rates of interest, which have weakened economies.

For now, Man & Machine in Greater Landover, Maryland, is awaiting shipment from Taiwan and greater China. An organization that makes washable keyboards and accessories for hospitals and other customers has suffered setback after setback.

Founder and CEO Clifton Broumand often receives a shipment of components about once a month, but the latest shipment, which left Asia 4 weeks ago, has been delayed. The normal route – a three-week route through the Suez Canal – was closed on account of Houthi attacks.

Redirecting to the Panama Canal also didn’t work – the shipment was hampered by the drought mess. He may must cross the Pacific to Los Angeles and arrive by truck or train in Maryland. Broumand has no idea when the products will arrive.

“It’s annoying and interesting. I feel our customers, all of them understand that. It’s not an issue like, “Why didn’t you plan this?” – who knew?” he said. “We call our customers and say, ‘Hey, that is going to be delayed. That’s why it’s like this. Nobody likes it, nevertheless it won’t kill anybody. It’s just one other frustration.’

Other industries experience similar problems.

Electric automotive maker Tesla must close its factory near Berlin from Monday until February 11 on account of delivery delays. Chinese-owned Swedish automotive brand Volvo was idled on its assembly line in Ghent, Belgium, where it produces station wagons and SUVs, for 3 days this month, waiting for a key gearbox part.

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Production at the Suzuki Motor Corp. plant. in Hungary was suspended for every week on account of a delay in the delivery of engines and other parts from Japan.

British retailer Marks & Spencer warned that the confusion would delay latest spring collections of clothing and homewares, which were on account of be released in February and March. Chief executive Stuart Machin said troubles in the Red Sea “affect everyone and that’s what we’re very focused on.”

About 20% of clothing and footwear imports into the U.S. arrive through the Suez Canal, said Steve Lamar, CEO of the American Apparel & Footwear Association. For Europe, the impact is even greater: 40% of garments and 50% of shoes go through the Red Sea.

“This is a crisis that has global implications for the shipping industry,” Lamar said.

According to Flexport, as of January 19, nearly 25% of world shipping capability is or might be diverted from the Red Sea, adding 1000’s of miles and every week or two to journeys.

The cost of shipping a regular 40-foot container from Asia to northern Europe has increased from lower than $1,500 in mid-December to almost $5,500. According to freight booking platform Freightos, moving cargo from Asia to the Mediterranean is even dearer: almost $6,800 in comparison with $2,400 in mid-December.

But it could possibly be worse. Two years ago, at the height of supply chain backup, it cost $15,000 to ship a container from Asia to Northern Europe and nearly $14,200 to ship a container from Asia to the Mediterranean.

“In terms of supply chain disruptions, we’re not even close to what happened during the pandemic,” said Katheryn Russ, an economist at the University of California, Davis.

In 2021 and 2022, American consumers, reeling from Covid-19 lockdowns and armed with government aid checks, went on a spending spree, ordering furniture, sports equipment and other goods. Their orders overwhelmed factories, ports and cargo yards, resulting in delays, shortages and better prices.

Now is different. After this supply chain mess, shipping corporations expanded their fleets. They have more ships to deal with shocks.

“The market is overcapacity,” said Judah Levine, head of research at Freightos, “which is thing. The capability needs to be sufficient to deal with this disruption.

Global demand has also weakened – partly because the U.S. Federal Reserve and other central banks have raised rates of interest to combat inflation and partly because China’s powerful economy is weakening. Inflation has fallen over the last 12 months and a half, even though it continues to be higher than central banks would expect.

“There are some really big forces driving inflation down,” said Russ, who was a White House economic adviser in the Obama administration. “It’s hard to say that (the Red Sea disruption) will significantly offset the declines in inflation that we’re seeing here and there beyond a tenth of a percentage point.”

Many corporations say they’ve yet to see a major impact. Retail Target, for instance, said most of its products don’t go through the Suez Canal and “was confident in our ability to provide guests with the products they want and need.”

BMW said: “All lights are green… our factory supply is secure.” Norwegian fertilizer giant Yara said it was “only slightly impacted” by transit challenges in the Red Sea.

Carlos Tavares, CEO of carmaker Stellantis, said: “So far, everything is fine. Things are going well.”

The rest may not last long. Flexport CEO Petersen warned that if shippers avoid the Suez Canal for a 12 months, “it’s a really big deal.” Higher costs would result in “goods inflation of 1 to 2%.”

Jan Hoffmann, a U.N. shipping expert, warned on Thursday that shipping problems in the Red Sea pose a risk to global food security by slowing the distribution of grain to parts of Africa and Asia that depend on wheat from Europe and the Black Sea area.

It could be even worse if the conflict in the Middle East deepens and drives up oil prices, which are actually lower than the day before Hamas attacked Israel on October 7.

For now, corporations are hesitant.

The Free People subsidiary of retailer Urban Outfitters imports clothing from India and “ships a lot of it by air,” co-CEO Frank Conforti said at an investor conference this month. However, putting furniture and home items on planes is simply too expensive.

At least home items aren’t as “fashion sensitive” as clothes, Conforti said, so wasting 15 days “sailing around the tip of Africa isn’t the end of the world.”