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Updated December 21st, 2023 at 16:54 IST

Exporters seek alternatives amid Red Sea disruptions

Container shipping costs have spiked, more than tripling in some instances, as companies navigate longer ocean routes to move goods.

Business Desk
Engineering goods exports
Engineering goods exports | Image:Pexels
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In the wake of intensified attacks in the Red Sea region, exporters are grappling with disruptions to global freight supply chains, prompting a search for alternative routes via air, land, and sea. The surge in attacks by Iran-backed Houthi militants in Yemen since November 19 has led to increased uncertainty in one of the key trade routes linking Europe and North America with Asia through the Suez Canal.

Container shipping costs have spiked, more than tripling in some instances, as companies navigate longer ocean routes to move goods. The disruptions pose a significant threat to the consumer goods sector, which supplies major retailers such as Walmart and IKEA, according to a report by S&P Global.

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Some companies are swiftly shifting to intermodal transport, involving multiple modes of transportation. For instance, leading German freight forwarder Hellmann Worldwide Logistics reports increased demand for combined air and sea routing for consumer goods like apparel, electronics, and tech items. This alternative allows companies to circumvent the danger zone in the Red Sea by transporting goods first by sea to a port in Dubai and then loading them onto planes.

However, the use of air freight is not a universal solution due to its higher cost. While companies moving urgent or critical items might opt for air freight, the expense remains a deterrent for broader adoption. Brian Bourke, Global Chief Commercial Officer at SEKO Logistics, notes that moving goods by air costs 5-15 times more than by sea.

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The Red Sea region witnesses approximately 35,000 vessels annually, constituting about 10% of global GDP, and plays a vital role in the supply chains of US retailers such as Walmart, Target, Macy's, and Nike.

The uncertainties surrounding the formation of a new international navy coalition by the United States add to the challenges faced by shipping companies. European companies, particularly in the fashion industry, are closely monitoring developments and relying on the potential success of the US-led task force to restore security in the region.

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As disruptions persist, shippers are forced to consider alternatives, including rerouting around the Cape of Good Hope. The timing of these challenges compounds difficulties for shippers, with the Panama Canal facing issues due to severe drought, Chinese New Year factory closures approaching, and container ship owners introducing fees, including emergency surcharges, for cargo affected by the Red Sea disruptions.

In a customer notice, French shipping group CMA CGM announced fees for cargo traveling to and from Red Sea ports, signalling the broader economic impact of the ongoing disruptions in this critical trade route.

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(With Reuters inputs)

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Published December 21st, 2023 at 07:47 IST

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