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Industry Talk

‘Perfect storm’ could break global supply chains,

Advantages of manufacturing abroad could become outweighed by increased transport costs.

9th January 2024

Innovation in Textiles
 |  United Kingdom


The double whammy of losing normal access to the world’s two great maritime ‘shortcuts’ – the Suez and Panama canals – is causing havoc in global trade, warns ParcelHero.

“Already, we have a drought in Panama severely reducing both the number of ships and the amount they can carry using the Panama Canal,” says David Jinks, ParcelHero’s head of consumer research and former editor of Lloyds Shipping Index. “Now the most direct route between Asia and Europe, via the Suez Canal, is being severely disrupted. Losing unrestricted access to these two vital trade routes will mean spiralling costs and lengthy delays.

“The Yemeni Houthi militant group’s attacks on ships in the Red Sea are serious because the Red Sea leads directly to the Suez Canal. This is a vital 119-mile shortcut between Asia and Europe that saves ships traveling an extra 5,500 miles around the Cape of Good Hope, adding at least a week to most sailings.

“A third of all the world’s container ships use the Suez Canal/Red Sea route. Each of those containers will likely be carrying thousands of products made in Asia for the UK and mainland Europe.  Products typically include everything from iPhones to fast fashion. The world’s big three shipping lines, MSC, Maersk and CMA CGM, announced they were pausing Suez Canal transits at the onset of the attacks, with many ships re-routing via the Cape of Good Hope rather than risk being fired upon.

“Consequently, Asian-manufactured goods heading for the UK have been delayed and costs have increased significantly. With global trade in the doldrums, many multinational companies had become used to very cheap services, as the big shipping operators fought over the available custom. However, shipping line prices are now rising steeply and unexpectedly, and this is having an impact on manufacturers and retailers. From Next to Ikea, many well-known retailers have already sounded the alarm as the attacks continue and disruption increases.

“Not only are there delays and increased fuel costs but also increased insurance coverage fees, as the Cape route is considered less safe due to potential pirate attacks and poor weather around Africa.

“Meanwhile, the world’s other great shortcut, the Panama Canal, still faces its own crisis. The amount of goods carried by vessels using the canal has been massively reduced and there are now severe cuts to the daily number of ships permitted to use the vital trade link.

“Generally, around 36 ships are allowed to transit the canal a day. However, from 1 January 2024, a limit of just 20 sailings has been in force. The result is that some desperate operators who haven’t booked their transit of the canal months in advance are paying up to $4 million at auction. The normal price for a container or bulk carrier ship is between $60,000 to $300,000 for a Neo Panamax ship over 10,000TEU.

“The huge French carrier CMA CGM (the third-largest shipping line in the world) has already announced a planned $150 per TEU container surcharge. A typical Panamax container ship can carry 5,000 TEU containers, so that means increased costs of up to $750,000 per sailing. The enormous Neo Panamax vessels are able to carry up to 13,000 TEU containers and customers are looking at a very significant increase in costs.

“With global trade routes in turmoil, who is likely to foot this bill? While manufacturers and retailers will be the ones paying more for every container carried in the short term, in the long term it will be consumers who end up paying. Expect store prices on products to rise in the coming months.

“The final result is hard to gauge but it will certainly motivate businesses that are interested in reshoring from areas such as China, where labour costs have been cheaper. The advantages of manufacturing overseas could become outweighed by increased transport costs and global supply chain disruptions.”

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