The people of the UK are facing the repercussions of the weak point of maritime global trade. Hundreds of food vessels and tankers containing commodities are being rerouted to the southern tip of Africa causing huge freight charges and extensive delays, thus affecting the supply chain. Genco Picardy, U.S.-based Genco Shipping’s supramax bulk carrier, is the latest vessel hit by the Houthi rebels.
To start with, the toddler community with the smallest pockets is affected by the Red Sea crisis. Ami Daniel, CEO of maritime risk management and Intelligence company, Windward, in an interview with Sky News, quoted “50% of the toys that you see in Hamleys are exported via the Suez Canal route”.
Imported Japanese and Korean cars make up the UK market through the Red Sea. Perhaps, each step towards the escalation of this calamity will eventually cost the consumers more for their necessities. In the coming quarters, the major economies like the US and the UK, will witness inflationary pressure.
Importance of the Red Sea
The Red Sea is connected to the Indian Ocean by the narrow Bab-el-Mandeb Strait and the Gulf of Aden at its southern end, and the Gulf of Suez, directing to the Suez Canal, at its northern end. Since the opening of the Suez Canal in 1869, the route has held global importance in maritime trade because it is the shortest maritime route from Europe to Asia.
The Suez Canal, in association with the Red Sea, is the busiest shipping lane in the world. According to the Freightos group, nearly 30% of global container traffic, and more than a million barrels of Crude oil per day, pass through the Suez Canal.
Trade between Asia, Europe, and the Middle East has changed significantly since the opening of the Suez Canal in 1869. Approximately 24,000 ships traversed the Mediterranean and Red Seas last year, accounting for 10% of global seaborne trade by volume.
The canal’s strategic location has helped the shipping trade industry to avoid embarking on the arduous journey around the southern tip of Africa, Cape of Good Hope, saving transit times of nearly two weeks and freight costs of millions of dollars.
Impact of the Red Sea Crisis Hitting the UK Market
With the ongoing shipping upheaval, it’s a matter of time before soaring prices appear in companies' revenue reports.
Britain’s supermarket giants, Tesco and Sainsbury have said that the price of coffee, wine, rice, and meat will shoot up high due to the supply-chain strains. Ken Murphy, chief executive of Tesco, said that if the shipping containers have to take the long way around Africa to reach Europe, it elongates the shipping times and shipping space, driving up shipping costs, and resulting in rising inflation on some items.
Simon Roberts, chief executive of Sainsbury, said, “We’ve had a lot of experience on similar matters, going back to the pandemic and the disruption in the Suez Canal then”. The officials of Sainsbury's have initiated conversations with Downing Street on ways to steer clear of hiking prices to customers and prevent empty supermarket shelves.
Marco Forgione, director general of the Institute of Export and International Trade (IOE&IT), has warned about the knock-on effects and said that goods from countries like Bangladesh, Vietnam, Thailand, Japan, and Australia will be majorly impacted.
He said that “shoppers should expect shortages in items ranging from clothing, shoes to shellfish, meat and mobile phones, cars, wine and tobacco”.
UK clothes retailers, Next, Superdry, Marks & Spencer and IKEA have raised concerns about the fragile supply chain environment and have stated that due to the difficulties in the Suez Canal, stock delivery might get delayed in the early part of the year.
The UK’s third biggest gas supplier, Qatar, has halted or diverted away LNG shipments through the Red Sea’s Bab el-Mandeb Strait which could force the nation to utilize its emergency fuel stockpiles.
The road ahead
In referring to the monthly GDP analysis by the Office for National Statistics, Marco Forgione said “The 0.3% GDP increase just announced for November is good news on the face of it. But with the Treasury estimating that the Red Sea disruption so far has knocked exactly that amount of GDP in recent weeks, those gains in November have effectively been wiped out already. And it could get worse.”
The Red Sea crisis serves as an alarm of how brittle the food supply chain can be, even though the impact has been minimal thus far.
Edited by - Georgiana
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