Blue Yonder & Moodys Warn of Long-Term Red Sea Damage

A report from credit ratings and research company Moodys shows that the Red Sea shipping crisis is causing the most significant disruption to Asia-Europe routes.

Traffic along the Red Sea shipping route – which connects Asia to the Mediterranean via the Suez Canal – is a vital conduit for Asia-Europe, and accounts for 15% of container shipments globally. 

Traffic on the Red Sea route has fallen by more than two-thirds since Yemen-based Houthi rebels began targeting commercial shipping, says Moodys, referencing data it began taking in early January. 

Disruption is forcing shipping companies to reroute vessels around the Cape of Good Hope in Africa, doubling shipping costs and lengthening delivery times by as much as 25%.

Moodys says the situation means European firms buying manufactured goods from Asia “may opt to absorb short-term cost increases because of healthy margins and weak consumer demand” and that this will “limit the fallout on inflation and growth”. 

Blue Yonder: long-term Red Sea crisis 'deeply damaging'  

However, it adds that if the disruption ends up being long term – or if the situation in the region escalates – then “deeper economic damage would be the result”.

“If the Red Sea becomes a permanently unviable trade route it will compound troubles for carmakers in Germany and Europe more broadly given the already-stiff competition they face for market share in Asia from Chinese competitors,” warns Moodys.

One supply chain leader who is also concerned about the effects of a protracted Red Sea crisis is Roy Bridgland, Senior Industry Strategies Director at supply chain management company, Blue Yonder. 

He says an increasing number of companies are already advising customers of supply chain delays and reduced stock availability. 

Bridgland points out that although the Red Sea crisis has been going on since last year the impact is likely “much more acutely felt in the coming weeks and months”.

He also says that, if the crisis continues indefinitely then it is likely that businesses “may have to introduce more nearshoring for future goods”.

Vessels left 'drifting' by Red Sea uncertainty

The problem, he says, is that many vessels in the Red Sea region have been left “drifting” by the crisis. Drifting is the term used for a vessel that is at sea without using fuel, while it awaits further instruction.

“This is not something that can be continued indefinitely,” Bridgland stresses, “and so most are now taking the longer route around the Cape of Good Hope, adding an average of two weeks to sailing times.” 

He points out that among those most affected by the Red Sea disruption are retailers who need to exercise fine control over available stock. 

“For retailers [such delays] can impact what promotions they put in place and where they send goods regionally once they arrive on-shore.” 

He says that for fashion retailers “whole seasons’ worth of sales can be lost”. 

Bridgland adds: “For now the situation is manageable, but if it continues indefinitely it’s likely to have serious consequences on the global supply chain upon which we all rely so heavily.

“Businesses need to be able to monitor the movement of vessels, potential chokepoints, stock availability, consumer buying behaviour and general forecasting that will help alleviate these current pain points.”