Red Sea shipping disruptions ripple through Asia-Europe supply chains

“Our ships that used to pass through the Red Sea are either staying in safer waters or switching to routes such as going around the Cape of Good Hope,” said a spokesperson at Nippon Yusen, also known as NYK Line, the largest Japanese shipping company and the operator of a ship seized by the Houthis in the Red Sea after the outbreak of the Israel-Hamas War.

According to Emily Stromquist, managing director of U.S. consultancy Teneo, diverting via the Cape of Good Hope can add up to two weeks of shipping time between Asia and Europe.

“Beyond the added costs and time of shipping around the Cape of Good Hope, the more container and tanker traffic is redirected along this route, the greater the logistical concerns too,” Stromquist said. “There is insufficient port capacity to handle this volume of shipping activity, and the risk of bunker fuel shortages could create additional bottlenecks along the route.”

Rates for ocean freight from Asia to Europe are rising sharply. The Shanghai Containerized Freight Index was 2,239 points on Jan. 21, double the level in mid-December.

The shipping disruptions are hitting global manufacturing. Tesla and Volvo Car earlier said they were suspending some production in Europe due to a shortage of components after many ships were rerouted around the southern tip of Africa.

According to one analyst, around 70% of components in the European automotive sector imported from Asia come through the Red Sea.

Japan’s Suzuki Motor also suspended production at a Hungarian car plant for seven days through Jan. 21 due to delays in the delivery of engines and other parts from Japan.

In Spain, the Association of Manufacturing and Distribution Companies announced that several sectors had launched advance orders for certain raw materials and goods, such as furniture and textiles, for which they are experiencing supply difficulties.

The extended sailing times of many ships have resulted in temporary shortages of ships and containers. “As a result, there are delays not only for ships from Asia to Europe but also for ships from China to Southeast Asia and elsewhere,” Takuma Matsuda, professor of maritime economics at Takushoku University in Tokyo, told Nikkei Asia.

Air freight rates are also rising due to the increasing demand to switch from ocean freight to air freight, which is more expensive but faster. Freight market analytics services Xeneta reported on Jan. 19 that air cargo volumes from Vietnam to Europe — a major trade route for apparel — spiked 62% in the week ended Jan. 14.

A spokesperson for Japan’s All Nippon Airways told Nikkei Asia, “We have begun to receive orders for cargoes from Japan to Europe and the east coast of North America, switching from ocean to air freight.”

Some shippers are continuing risky journeys through the Red Sea. French shipping group CMA CGM decided to continue sailing through the troubled waters under the protection of the French navy.

A spokesperson for Singapore-based Pacific International Lines, the largest carrier in Southeast Asia, told Nikkei Asia on Tuesday, “As of now, we are continuing our Red Sea services with enhanced security measures in place and keeping in constant contact with our vessels.”

In the bigger picture, however, the shipping disruptions serve as a fresh reminder that global supply chains are subject to unexpected risks.

With no signs of the situation calming down, the European Union this week agreed in principle to deploy ships to the Red Sea to protect commercial ships from Houthi attacks. Asian countries such as Singapore have also announced participation in the operation to secure the sea route.

“Long-distance supply chains are now more risky than they were,” said Tirschwell, citing various factors such as geopolitics, public health, and climate. Companies may need to engage in longer-term strategic decision-making beyond short-term shipping and supply adjustments, he added.

Source: Nikkei Asia

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