Red Sea crisis: Container shortage & soaring shipping costs drive up cost of white goods

KIEL (GERMANY) : The ongoing conflict in West Asia, particularly in the Red Sea region has severely impacted global shipping, causing a significant increase in sea freight costs and disrupting the supply chains for various goods, including large appliances and IT hardware, according to reports.

The conflict, which began escalating in October 2023 when Houthi rebels in Yemen launched missile attacks on container ships in response to Israel’s bombardment of Gaza, has led to major shipping carriers suspending operations in the Red Sea. This has forced many vessels to take the longer route around Africa’s Cape of Good Hope, extending the journey by up to two weeks.

The Red Sea is a critical shipping channel, providing access to the Suez Canal, through which about 30% of global container trade passes. The disruptions in this region, combined with blockages in the Panama Canal due to severe drought, have exacerbated the situation. As a result, consumers are expected to face higher prices for large gadgets like television sets, washing machines, and air conditioners.

The impact on global trade has been significant. From November to December 2023, global trade volume declined by 1.3%. The Kiel Trade Indicator reported that the volume of containers shipped in the Red Sea dropped from around 500,000 containers per day in November to only 200,000 containers per day in December, a 66% decrease compared to expected volumes based on historical data from 2017 to 2019.

The increase in shipping costs and the logistical challenges posed by the longer routes are expected to result in higher prices for consumers. The ongoing conflict and the strategic importance of the Red Sea underscore the vulnerabilities in global supply chains and the potential for localized conflicts to have far-reaching economic impacts.

Source : Firstpost