Global supply chain disruption in 2024 is a “possibility”, according to experts, as the world’s biggest shipping companies are re-routing their journeys to avoid the Red Sea.
The past few days have seen many companies choose not to travel via the Red Sea to the Suez Canal, following attacks on commercial vessels by Houthi rebels in Yemen in the wake of the ongoing crisis in Gaza.
Due to the attacks on vessels transporting goods, ships are now taking a much longer route around Africa’s Cape of Good Hope, which will add up to 10 days’ shipping times and increase companies’ costs.
XPO Logistics UK and Ireland managing director Dan Myers said most goods for the festive season have already arrived and there is “unlikely to be any noticeable disruption to Christmas,” but there is a “possibility of disruption” in the new year.
“Some shipping lines have already raised rates by approximately 40%.”
“Due to the current re-routing of vessels around Africa via the Cape of Good Hope, transit times and costs will inevitably be affected,” he said. “Some shipping lines have already raised rates by approximately 40%.”
Tim Lawrence, supply chain expert and director of the digital supply chain hub at Digital Catapult, agreed that there is possible disruption to come in the first few months of 2024, but that this can be dealt with quickly.
“What’s important to note is that unlike the Suez Canal blockage which occurred two years ago, where at the time we saw consumer demand outstrip supply, this is currently not the case, with supply currently outstripping consumer demand due to the economic downturn.
“Visibility into these challenges is much better understood now, and we have been working with businesses to develop pioneering new solutions that can provide retailers with early warnings of the potential for disruption to help them to prepare,” said Lawrence.
Swedish furniture and home giant Ikea has warned that the ongoing situation “will result in delays and may cause availability constraints for certain Ikea products”.
It is not known exactly which Ikea products pass through the Suez Canal, but the retailer lists China as one of the top countries where products are sourced.
Long-term risks
Around 17,000 ships and 10-15% of global trade passes through the Red Sea every year, mainly transporting oil, liquefied gas and consumer goods.
The journey via the Cape of Good Hope adds an additional 3,500 nautical miles, and could have a negative long-term impact to global supply chains if ships continue to sail via this route.
“The impact of the Red Sea disruption could have a minor impact on levels of inflation in the UK”
Myers said: “The main risk in the extended supply chain and vessels routing via the Cape of Good Hope will result in higher container rates, which has the potential to feed through to inflation.”
Lawrence commented that the increased lead time will likely have an “impact on inventory holding in the supply chain” while insurance costs for ships and goods could increase.
“The impact of the Red Sea disruption could have a minor impact on levels of inflation in the UK if the problem persists,” he said.
“The ongoing disruption does however highlight the need for industry and logistics companies to be vigilant for shocks to the global supply chain and to invest in new solutions and technologies that can identify disruption early and mitigate these risks.”
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