Red Sea conflict: Supermarkets bring forward orders to ride out shipping delays

Tuesday, 16 January 2024

Pak’n Save and New World owner Foodstuffs has begun taking steps to minimise the risk of gaps on the shelves.

Supermarket group Foodstuffs is re-ordering some groceries sooner than it would normally do to reduce the chances of shoppers being affected by shipping problems in the Red Sea and on the Panama Canal.

But it is exporters and car importers that appear most nervous about the potential impact of shipping delays and extra transport costs.

Many shipping companies have re-routed vessels that would normally travel through the Suez Canal around the Cape of Good Hope since the Houthi group, which controls much of Yemen, began firing missiles and drones at ships traversing the Red Sea in December.

There are fears it could become a more protracted conflict after the United States and Britain responded by bombing targets in Yemen.

Meanwhile, traffic through the Panama Canal has been restricted because of a drought that has reduced the water level on the key transit route through Central America.

A Foodstuffs spokesperson said it was too soon to see any impact on its shelves from the Red Sea conflict.

When it comes to imports, European vehicles are one of the products most susceptible to extra shipping costs and delays.

“The lead times to bring stock into New Zealand from Europe and North Africa are longer than the number of weeks this crisis has started to impact.”

But Foodstuffs was bringing forward orders to replenish stock earlier than usual, she said.

“The situation could change depending on recovering water levels and the situation in the Red Sea not further escalating.”

ExportNZ expected exporters might be more impacted than importers by shipping delays, given that many of the country’s exports were seasonal.

Executive director Joshua Tan said there was a lot of discussion among members about events in the Red Sea, but the outlook was uncertain.

He understood shipping companies were applying a surcharge of about US$1500 (NZ$2420) for carrying containers to or from Europe, which he described as a significant cost.

Europe was the country’s fourth-largest export destination and an important one for meat, wine and horticulture exporters, he said.

“At this point I wouldn’t say it is a disaster, putting it in the context of what exporters went through with Covid.”

But any extended period of disruption could have significant impacts down the line, especially if they had flow on-flow effects, for example on the availability of shipping containers, he said.

“When horticultural products are picked, obviously there is some time sensitivity around when they are shipped.”

Car importers tend to be more affected than most by shipping costs because cars are relatively bulky.

Motor Industry Association president and Ford NZ boss Simon Rutherford said costs had been increasing before ships started avoiding the Red Sea, and he anticipated buyers of European vehicles would see an impact from the conflict.

Briscoes is not expecting its customers to notice any direct effect on its prices due to shipping issues.

Ford had chartered two vessels before the conflict to increase the resilience of its supply lines, and might now look at chartering another vessel to transport vehicles from Europe to New Zealand and Australia, he said.

“For the industry as a whole, any European-sourced product is going to have cost increases or potentially greater risks, because of the current circumstances on top of what were already relatively high costs.”

Briscoes managing director Rodney Duke said its deliveries from Europe were taking an extra 20 days and attracting a surcharge.

But he was not expecting gaps on its shelves or for its customers to notice any direct effect on its prices, given Briscoes did not source many products from Europe at this time of year, and it was possible to put a lot of homeware into a shipping container.

“The supply chain is pretty much open, and there's a fair amount of stock available to purchase overseas.”

Its prices were more impacted by exchange rate movements than changing shipping costs and Briscoes was mostly paying for goods on arrival, so the impact of delays on its cash-flow was limited, he said.

Christchurch tile importer The Tile Company uses Danish shipping giant Maersk to import all of its products from Europe, but otherwise described a similar situation.

Director Dan Shelley said a couple of its containers that had been expected to arrive on January 5 had been delayed by a fortnight because Maersk has diverted its vessels around the west cost of Africa.

It had experienced some increases in shipping costs which was a shame, given prices had just recovered from the increases sparked by the Covid pandemic, he said.

“We were paying up to nearly $14,000 for a container a couple of years ago. It had gone back down to about $5000 or $6000 and it’s probably back up to $7000 or $8000.”

But he also described the shipping problems as more of an inconvenience, given those extra shipping costs only translated to about $2 per square metre of tiling.

Shelley did not expect any flow-on impact to be noticeable to consumers, given the company sold premium tiles.

Delivery delays were potentially more of an issue, but builders had got a lot more organised and were planning further ahead following the materials shortages that plagued the industry during the peak of the Covid pandemic, he said.

“We've got a few million bucks of stock sitting in our Christchurch warehouse, so we don't have too many problems.

“You are always going to have ‘stock-outs’ from time-to-time and now we're going have to wait a couple of weeks longer. But it is what it is; there is not much you can do about it.”