Houthi attacks on ships
Are there now a threat of delivery bottlenecks like during Corona times?
By Diana Dittmer
January 12, 2024, 7:27 p.m
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The attacks by the Houthis on merchant ships in the Red Sea are forcing shipping companies to take major detours. Delays and high costs are the result. Tesla has to temporarily stop production in Germany. Bad memories come back.
The Iranian-backed Houthi militia’s repeated attacks on international shipping in the Red Sea could potentially have a greater impact on supply chains and the global economy than previously expected – especially if the conflict drags on for months. Tesla announced this Friday that it would have to temporarily stop production at its electric car factory in Grünheide due to a lack of supplies of parts. Several business associations are already warning of delivery delays and the costs of transporting goods by sea are rising. And oil prices are also climbing due to fears of a major regional war that could disrupt supplies. Memories of supply chains that were blown up during the pandemic are awakening.
Since the Gaza war broke out between Israel and the Islamist Hamas on October 7, 2023, the militia operating in Yemen has repeatedly attacked ships with alleged ties to Israel in the Red Sea. So far there have been 27 attacks on international merchant ships. Six of the ten largest container shipping companies – Maersk, MSC, Hapag-Lloyd, CMA CGM, ZIM and ONE – therefore largely or completely avoid the Red Sea. Instead of going through the Red Sea, the ships are now sailing around Africa and the Cape of Good Hope. The detour takes seven to 20 days, which not only causes delays but also incurs additional costs.
Car manufacturer in exchange with logistics partners
Tesla was forced to suspend most of its production between January 29th and February 11th due to significantly longer transport times and gaps in the supply chain, the US car manufacturer said in a statement. Because of the attacks, European competitors are also routing their deliveries around the Cape of Good Hope and are forced to accept higher costs and delays of two weeks. However, supplies seem to be secure for them so far. In response to a request from ntv.de, BMW said that the situation in the Red Sea had “no impact on the BMW Group’s production.” “The supply to our plants is guaranteed,” it says. When asked, spokespeople from Volkswagen and Mercedes also stated that production was “running almost without restriction”. All three manufacturers also emphasized that they are “in close contact” with shipping companies and logistics service providers. The situation is being continuously monitored.
The Suez Canal, which connects the Mediterranean with the Red Sea, is considered the gateway to Europe. Shipping companies use it to transport a large proportion of goods to and from Asia, usually thousands of tonnes every day. Latest figures of the Kiel Institute for Economic Research (IfW) show that the number of containers transported on this route has recently fallen by over half. The transport volume is currently around 200,000 containers per day. In November 2023 there were 500,000 containers. “This means that the current volume is 66 percent below the actually expected volume, calculated from the freight volume from 2017 to 2019,” writes the institute.
The round trip between Asia and Europe is around 13,000 kilometers longer due to the detour around the Cape. That drives up the costs. According to Hapag-Lloyd, this will result in additional costs amounting to double-digit millions. The amount of the surcharges depends on the travel area, it is said. Customers would have to pay the higher prices. The IfW provides concrete figures: According to this, the prices for container transport – known in industry jargon as freight rates – for a 40-foot standard container between China and Northern Europe are currently “over 4,000 US dollars”. “In November it was around 1,500 US dollars,” according to the IfW.
IfW: No comparison with the situation during the pandemic
The Cologne institute added that this is significantly more, but not yet a reason to revive scenarios similar to those in the pandemic. “The current price is still a far cry from the drastic spikes during the Corona pandemic, when transporting a container on this route cost up to $14,000.” Trade policy expert Julian Hinz from the IfW therefore does not expect major disruptions in the supply chains and consequences for consumer prices in Europe. “The situation today is not comparable to the environment during the Suez Canal Ever Given disaster and the coronavirus pandemic, when lockdowns led to a drastic decline in the supply of goods while demand in Europe soared.”
How long the crisis lasts will likely be crucial for further developments. However, given the difficult political situation, one can only speculate about this. The head of shipping giant AP Møller-Maersk, Vincent Clerc, warned in the Financial Times that it could well be months before the important Red Sea trade route is reopened, causing economic and inflationary impacts on the global economy, could lead to companies and consumers. Given the difficult situation, there are “no winners,” the paper quoted him as saying. Maersk transports around a fifth of the world’s sea freight.
The German Chamber of Commerce and Industry also expressed criticism. The DIHK has already warned of bottlenecks in the supply chains due to the attacks on shipping in the Red Sea. Longer delivery times, rising transport costs and increasing insurance costs are starting to have an impact, they say. Important intermediate products for German industry are “currently not arriving on time,” said DIHK foreign trade chief Volker Treier. The first warehouses would run empty and production impairments at German companies would become visible. He added that processes in the ports are also likely to become more difficult because ships are arriving later than planned and containers for export are waiting to be picked up. As the most open economy of the major industrial nations (G7), Germany is particularly dependent on functioning supply chains, he warned.
Bottlenecks possibly from April?
The trade association (HDE) and the Federal Association of Wholesale, Foreign Trade and Services (BGA), however, do not expect worse effects and empty shelves in the “short and medium term”. Both say that the supply chains have become more robust during the corona pandemic and during the Russian war against Ukraine. “There will only be short delivery delays in individual cases,” BGA President Dirk Jandura is convinced.
Uncertainties remain: the situation could be exacerbated by, for example, the upcoming week-long plant closures in China due to the New Year celebrations. Nothing works in China between January 21st and February 21st. That, plus the blockades in the Red Sea, could tip the balance. Logistics experts have already reported a container bottleneck in the port of Ningbo. It is expected that there will be significant delays in goods expected for April or May. The discounter Aldi Nord is expecting a possible shortage of household goods, toys and decorations. As a precautionary measure, the retail giant has postponed advertising campaigns for certain products to secure supplies.
BDI: Federal Navy should help protect trade routes
In view of the situation, Maersk boss Clerc called on the international community – led by the USA – to do more so that the Red Sea can be reopened to ships. And in this country, too, there are increasing voices calling for the federal government to take precautionary responsibility. This week, for example, the Federation of German Industries (BDI) spoke out in favor of the Federal Navy’s participation in operations to protect trade routes. “The tense situation in the Red Sea is leading to uncertainty,” complained BDI board member Wolfgang Niedermark. The crisis is particularly affecting sectors that rely on raw material or component deliveries from Asia.
The problem is that the weakening economy has already hurt global trade this year. According to forecasts by the International Monetary Fund (IMF), it will only increase by just under one percent this year. The average from 2010 to 2020 was 3.5 percent. The current security policy challenges in the Red Sea also had a negative impact on the international division of labor and economic development, said DIHK foreign trade chief Treier.