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‘I’m really concerned’: Red Sea conflict likely to cause disruption (again) for Irish businesses

‘I’m really concerned’: Red Sea conflict likely to cause disruption (again) for Irish businesses

Rotterdam port in the Netherlands, the busiest port in Europe Alamy Stock Photo

THE MORNING LEAD

Conflict near the Suez Canal is causing havoc for shipping companies.

IRISH BUSINESSES ARE likely to face knock-on problems due to the disruptions to shipping in the Red Sea, industry experts have said. 

Delays on important shipping routes, increased prices, and a shortage of shipping containers are expected to create problems for industries in many parts of the world, including Ireland, as the Red Sea becomes a conflict zone.

“I’m really concerned that this is going to cause problems for Irish businesses,” one expert has told The Journal

The Houthis, who control significant parts of Yemen along the coast of the Red Sea, have been targeting cargo ships en route to Israel in retaliation against Israel’s attacks on Gaza.

In Gaza, more than 24,000 people, many of them children, have been killed since October as Israel bombards the region with missile strikes and on the ground. Israel launched its deadly offensive against Gaza after Hamas’ attacks in Israel on 7 October, when around 1,200 people were killed and 250 taken hostage. 

Speaking to The Journal, CEO of the Irish Exporters Association Simon McKeever outlined the significance of the Red Sea to global trade. 

“About 30% of the containers that travel around the world go through the Red Sea, and particularly through the Suez Canal,” McKeever said.

“As a result of the attacks in the Gulf and ships being routed down around the southern tip of Africa, the volume of container traffic going through the Red Sea and through the Suez Canal has dropped by 70% since November.”

The extra distance travelled by ships increases the length of the journey by about 35%, which means the ships burn higher volumes of fuel – something that is harmful for the environment and more expensive for trading companies.

McKeever expects that the knock-on effect of delays will inflate as the disruptions persist, much like delays and price increases in shipping during the Covid-19 pandemic.

A key problem is that there is a limited supply of shipping containers around the world that are used and re-used for transporting freight. Delays in one area means those containers are held up and not available for other journeys.

“If you look at a main route like Shanghai to Rotterdam, that journey normally takes 27 days. It’s now taking anywhere between 35 and 40 days,” McKeever said.

“Those boxes that are on the container ship are now arriving 7 to 10 days late, and so when they get returned back out to China with European freight, they’re going out 7 to 10 days late and then they’re arriving back in China 14 to 20 days later than they should have been.

“If you take it as being 10 extra days on a single leg of that journey, then each month, the time for freight to transit that route is going up by 10 days. You add that up over a period of time and you’ve got quite a congestion building in freight,” he said.

The fact that there’s a limited amount of boxes causes the price of freight to go up because what companies do is rent space in the container box to be able to move their goods.

“That’s exactly what we saw during Covid-19. There was a scarcity of boxes, the price of moving freight went up, and that fed into factories in Ireland in that there was a delay in goods coming in and a delay in exports going out, and it was the start of the inflationary spiral that we saw.”

Costs soar

Companies tend to book their freight movements by around a year in advance, but last-minute bookings are priced using what’s known as the ‘spot rate’.

The spot rate for shipping cargo across the world has soared in recent weeks and is expected to rise even further.

“On the Shanghai-Rotterdam route, the spot rate has gone to $4,000 for a 40 ft container,” McKeever said.

“We’re hearing stories of some quotes now for February being $10,000. They were down in the two thousands in November. The height during Covid-19 was $14,000.”

Risk for Irish industry

The trade expert says he is “really concerned that this is going to cause problems for Irish businesses”. 

“My sense of what’s going to happen is that the longer this goes on, the more it is going to become inflationary from an input price into Irish businesses,” he said.

“It is also going to affect some consumer goods. We’re already seeing some outlets in the UK saying that they’re seeing delays. We’ve heard some of the car companies on the continent saying that they’re seeing delays.

“I would be very concerned that the longer that these attacks go on in the Gulf, the bigger the impact is going to have on Irish business and Irish consumers from both a delay point of view and an inflation point of view.”

In December, Kevin Brady of Woodland Group outlined how containers bound for Ireland have to be unloaded at European ports and then put on a smaller vessel before coming to Irish ports.

“So it’s a minimum of a two-week delay but then we can expect further delays because of congestion in European ports,” he said. “This is the fastest route into Europe, and we’re all at the mercy of this situation.”

Ikea told the Irish Independent that it expects to see supply delays to Ireland and availability constraints.

Supply chain expert at EY Ireland, Neal Johnston, has said that Irish businesses have reported delayed deliveries due to the disruption in the Red Sea.

“The ongoing attacks on shipping in the Red Sea are impacting the global supply chain, causing delays and concerns for businesses who use the Suez Canal, one of the most important sea routes globally,” Johnston said in a statement.

“Businesses here in Ireland have been reporting delayed or missed delivery windows, while some have made tactical decisions to postpone their shipments for a short period,” he said.

“More broadly, some of our clients have expressed concerns about the possibility of shipping lines diverting their vessels away from the region, which would have significant implications for delivery timeframes and costs.”

Johnston said it does not appear right now that the disruption will escalate to the scale of the impact that occurred when the Ever Given blocked the Suez Canal in 2021, but that it is “a highly volatile situation that could rapidly intensify”.

“From a supply chain perspective, the sooner this issue is resolved the better as the longer it continues the greater the impact that will be felt by Irish consumers and businesses.”

The background

The Houthi operations in the Red Sea have taken the form of drone attacks, missile strikes and boardings onto ships. No fatalities have yet been recorded.

The situation has escalated in recent weeks as the US carries out strikes in Yemen targeting Houthi-controlled areas, raising fears that the fighting between Israel and Hamas will spill out into a wider conflict in the Middle East. 

From December, several shipping firms decided to suspend routes through the Red Sea due to the attacks.

The Red Sea leads to the important Suez Canal, which allows cargo ships to cross through continents on busy trade routes, particularly between Asia and Europe. In 2021, cargo ship the Ever Given became notorious across the world when it got stuck in the canal, causing major disruption to trade.

Avoiding the Red Sea means ships are faced with rerouting around the southern tip of Africa or crossing the Pacific and Atlantic oceans to use the Panama Canal in Central America – both of which are timely and costly changes.

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