Chaos in the Red Sea continues to exacerbate global supply chain disruption, reportedly creating an even bigger issue for companies – both in the retail and promotional products industries – than the COVID-19 pandemic did.

As a result, many container shipping lines and tanker owners have stopped transit in the Red Sea and are rerouting around the Cape of Good Hope, adding an additional two weeks to the supply chain and reducing global container capacity, Reuters reported.

  • As of January 24, more than 560 carrier vessels accounting for nearly 25% of global capacity are actively diverting, will divert or have already diverted the Suez Canal, according to Flexport.

Worse Than COVID

The longer transit is already having a more significant impact on vessels available to pick up containers at ports than during the pandemic, Sea-Intelligence reported.

The ocean supply chain advisory firm says it’s the second-largest vessel capacity drop since the “Ever Given” cargo ship got stuck in the Suez Canal for nearly a week in March 2021, bringing billions of dollars’ worth of trade to a standstill.

  • Sea-Intelligence estimates that approximately 10% of the world’s fleet are currently not in service.
  • Alan Murphy, CEO of Sea-Intelligence, stresses that ocean carriers need to add one or two additional vessels to offset the current delays.

Meanwhile, the delays have impacted several companies’ supply chains: Tesla, Volvo, Michelin and Suzuki Motor have all said they’ve had to pause manufacturing. 

“Threats to Red Sea shipping are a threat to maritime commerce worldwide,” Stephen Lamar, president and CEO of the American Apparel and Footwear Association, told CNBC. “Delays and cost increases are mounting. Although companies are exploring alternative shipping options, adverse knock-on effects continue to disrupt logistics globally. More needs to be done to ensure the safety of crews and security of cargo by eliminating existing or future threats entirely.”

What This Means For Promo

During a Congressional hearing earlier this week, trade experts warned that costs will continue to rise as long as ships have to avoid the Red Sea.

  • While rates on ocean routes from Asia to Europe and the Mediterranean are beginning to decline, rates for U.S.-bound trade are still climbing, with spot container prices having climbed as high as $10,000.

Jon Gold, vice president of supply chain and customs policy at the National Retail Federation, said that companies are seeing container prices double from $1,500 to $3,000, representing a maximum 73% cost increase for directly affected cargo.

In addition to the freight rate hikes, Gold said, additional surcharges are being applied to additional trade routes, such as Europe to the United States, due to issues with the availability of containers. That’s led to a rise in air freight volumes as retailers attempt to expedite delivery of their products.

  • Air cargo volumes from Vietnam to Europe – a major trade route for apparel – spiked 62% in the week ending January 14, according to Xeneta data.

“This is typically a quieter time of year for air freight, so to see increases of this magnitude – with higher volumes than at any point in 2023 – is significant,” says Niall van de Wouw, chief airfreight officer at Xeneta.

Importance Of The Suez Canal

The Suez Canal, which facilitates the transportation of fuel and products from Asia and the Middle East to Europe and the United States, has been “Plan B” for many shipping companies since the Panama Canal has faced restrictions due to an ongoing drought.

  • Roughly 12% of world trade goes through the Suez Canal, and about 5% goes through the Panama Canal, according to The New York Times.

Since the summer, vessel capacity on all-water shipments from Asia to the East Coast along the Panama Canal has been reduced – some as much as 40% – in order to avoid hitting the bottom with water levels so low.

  • In January, the number of vessels permitted to pass through the system daily increased from 22 to 24, still a far cry from the standard 38.