The Global Supply Chain is being disrupted at the Suez Canal and the Panama Canal and is resulting in higher shipping costs.
Over 90% of the world’s traded goods are transported by ship, according to the Organization for Economic Co-operation and Development, but the conflict in the Red Sea and a drought in the Panama Canal region are delaying ships or causing them to reroute. These disruptions have increased shipping costs, prompting fears of inflation. Rerouted ships must also travel farther distances, and some companies are switching to air shipments.
Red Sea Attacks
Almost 15% of
all global trade conducted by sea passes through the Red Sea, including 8%
of all globally traded grain and 12% of all oil transported by ship, according
to a joint statement from the U.S. and 13 other countries.
Since mid-November, the Yemen-based Houthis have been launching
drone and missile attacks in the Red Sea in an effort to keep ships from delivering
goods to Israel and force a cease-fire in the Gaza Strip.
Companies have responded by sending ships around the southern tip
of Africa to avoid
going through the Red Sea, which can add at least a week of travel time. In other
instances, shipping companies have turned to air
freight, which is usually more expensive and has less
capacity when it comes to how much can be shipped per load.
Tesla and Volvo factories in Europe have already had to pause
some production because the delays have caused a shortage of needed
materials. Ikea has said that the delays
could cause a shortage of certain products from the popular Swedish furniture
company.
Sea-Intelligence, a supply chain advisory firm, said the effect on
weekly shipping capacity caused by the conflict in the Red Sea is “even
larger than the early pandemic impact.”
A coalition of countries, led by the U.S., was formed in late 2023
to protect shipping routes in the Red Sea, but countries have been
hesitant to join, and the Houthis have warned that any country
involved in the coalition will be
targeted.
After delivering a series of warnings that went ignored, the U.S.
and U.K. launched a strike in Yemen early on Jan. 12 local
time. The U.S. struck Houthi targets for the sixth time on Jan. 19, then the
U.S. and U.K. struck
Houthi targets in Yemen again on Jan. 22.
A spokesperson for the Houthis told Al Jazeera the group will not
stop attacking shipping routes, even amid U.S. attacks on Houthi targets. As of
Jan. 19, Reuters reported that the Houthis don’t
plan to expand their attacks beyond preventing ships from getting to Israel
and retaliating in response to U.S. and U.K. attacks.
Panama Canal Drought
Due to severe drought in the region, authorities recently cut the
number of ships allowed to pass through the Panama Canal by 36%. As of Jan. 18, the wait
time for a ship wanting to get through the canal was anywhere from two to 55 days, depending on the type of
ship and whether it was northbound or southbound, according to global port
agency WaterFront Maritime Services.
The delay has caused some shipping
companies to reroute through the Suez Canal, which has also become difficult
to pass through due to the Houthis’ attacks in the Red Sea. CNBC reported
that so far, 90% of container ships going to the Suez Canal have been rerouted.
Increasingly longer routes and delays could also cause a shortage
of shipping containers, prompting what’s known as a “container
crunch,”
which could lead to even more delays.
Comments
This latest inflation threat is directly related to over-reliance on global trade. The US and Europe need to curtail their imports from Asia and manufacture these goods in their own countries.
Norb Leahy, Dunwoody GA Tea Party Leader
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