Ongoing Red Sea situation is expected to last at least into second half of 2024

 

The ongoing series of attacks on the Red Sea shipping lane by the Yemeni Houthi pirates in response to the ongoing Israel-Palestine conflict continues to resonate within the global supply chain and economy by extension, to be sure.

It has elicited no shortage of takeaways and opinions about various related factors, including: its potential duration; impact on rates; and supply chain strategies and contingency plans, among other things.

 

As an example, Maersk previously announced that for its vessels that were due to transit the Red Sea/Gulf of Aden are now being diverted south around the Cape of Good Hope for the foreseeable future. While this is clearly a necessary, it does add roughly 10-142 days of extra transit time for cargo to reach its final destination. Maersk added this week that it expects to the Red Sea-related disruptions to continue into the second half of this year.

In a recent conversation with Chris Rogers, Head of Supply Chain Research for S&P Global Market Intelligence, Rogers said he agrees with Maersk's assessment.

 

"This is not just about the Houthis in Yemen doing their bit to help Palestine in its Israel conflict; this is about a broader attempt by the Houthis to make themselves relevant in the region," he said. "Unless the U.S. military finds some way to permanently deter the Houthis from attacking shipping, they will continue to do so. And, therefore, these disruptions will continue into the second half of the year."

 

Taking that a step further, Rogers posited that assuming it does continue into the second half of the year, it leads one to wonder how that would impact Peak Season planning. The reason for that, he said, is an added 10 days of ocean transit time equates into Peak Season preparations being done at least two weeks sooner and impacts all related decisions, including: when a vessel leaves port, when cargo gets delivered, when product gets produced, when a purchase order is placed, and when it is decided what products are going to ship.

 

In the recently-released Port Tracker report issued by the National Retail Federation and maritime consultancy Hackett Associates, Ben Hackett, founder of Hackett Associates, explained that while the biggest worry hitting supply chain headlines is the impact of the Red Sea disruptions, the shipping industry has rapidly adjusted by adding extra vessels to its networks, and has returned to normal weekly ship arrivals.

 

"They have also added transshipment points in Sri Lanka and at the western end of the Mediterranean," he said. "Service from Asia to the U.S. East Coast is working well and the dramatic rise in freight rates is showing signs of easing, with pressure from shippers likely to quickly bring these down. The Red Sea situation is hardly impacting the majority of Asia-U.S. shipping, and the water-level problems at the Panama Canal that could have required rerouting via the Red Sea have not had much impact on container ships."

 

And NRF Vice President for Supply Chain and Customs Policy Jonathan Gold added in the report that while only about 12% of U.S.-bound cargo comes through the Suez Canal, the situation in the Red Sea is bringing volatility and uncertainty that are being felt around the globe.

"U.S. retailers are working to mitigate the impact of delays and increased costs," noted Gold. "However, the longer the disruptions occur, the bigger impact this could have. More needs to be done among partners and allies to ensure the safety of vessels and crews in order to avoid yet another year of supply chain disruption."

This ongoing situation remains very fluid, as well as unpredictable. Much like the pandemic, it highlights the need for supply chains to be nimble, reactive, and resilient in a time of unexpected crises. This situation is far from over, which makes things unpredictable. But one thing we should all know and expect by now is that the global supply chain will find its way to get cargo delivered in a safe and efficient manner, even if there are some bumps along the way.

 

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