Shoppers can expect hit in pocket from Red Sea conflict

Monday, 15 January 2024

Longer transit times for ships avoiding the Suez Canal could compound into a larger supply-chain problem.

Shoppers are being warned to expect more persistent inflation and less variety on the shelves because of the conflict in the Red Sea.

Fears are rising that ships, including vessels travelling to and from New Zealand and Europe, may need to be re-routed away from the key waterway for a protracted period.

Retail NZ chief executive Carolyn Young said if the conflict was resolved soon, the knock-on effect might be only patchy. But she was concerned about the possible effect on seasonal Easter trading if the crisis dragged on.

Retail NZ chief executive Carolyn Young is concerned about the possible impact of shipping disruptions on time-critical Easter trading.

“If it’s going to dig in, which I fear it might, I think we'll probably be having a slightly different conversation in a week or two.”

Shipping firms began diverting vessels away from the coast of Yemen, which is the gateway to the Red Sea and the Suez Canal, a few weeks ago.

That was after the Houthis, a group controlling most of Yemen, began attacking ships with drones and missiles on December 3, supposedly targeting Israel-affiliated vessels in response to Israel’s invasion of Gaza.

The Houthis threatened on Saturday to step up attacks in response to strikes by the United States and Britain on associated military facilities in Yemen on Thursday and Friday.

Infometrics principal economist Brad Oslen said shipping costs had nearly doubled over the past two weeks according to one price-tracking index, and there would be consequences.

“There is little chance of a quick return to normal for shipping. The flow-on effects of cascading delays and access to containers present risks to inflation and New Zealand trade,” he said.

Hamburg-based logistics firm Container Xchange warned on Saturday that shipping charges were rising “at a staggering rate” and that businesses in Asia were braced for a shortage of shipping containers themselves, as they spent more time in transit.

Sherelle Kennelly, chief executive of the Auckland-based Customs Brokers and Freight Forwarders Federation, said shipping firms here had applied surcharges and warned importers and exporters to expect delivery delays.

The director of Fonterra’s global supply chain, Santiago Aon, said re-routing ships around the Cape of Good Hope had added between 14 and 17 days to its transit times.

Fonterra has faced a delay of 14 to 17 days shipping products to some customers.

He also indicated there was a risk of compounding problems.

“It is very likely these changes will result in congestion and delays and the detail will become clearer over the next few weeks. This is a very fluid situation.”

A drought in central America that restricted traffic on the Panama Canal threatens to add to trade woes, though Aon said Fonterra had not experienced significant delays on that route to date.

Shipping costs are a small factor in the price of most goods, but Young said that varied, and delays could be the bigger snag for some firms as it impacted their cash-flows.

It was not only longer sailing times around the Cape of Good Hope that could result in delays, she said.

“Ships are going a completely different route and if they're not stopping anywhere along the cost of Africa to pick up stock, they may need to be fully laden when they leave.

“Sometimes they may not leave for an extra 10 days or two weeks, and then you've got the longer passage on top of that.”

However, Lloyds of London specialist James Baker said he did not expect supply-chain problems to be as bad as during the height of the Covid pandemic.