Red Sea disruption causing higher ocean-freight costs, shipping delays

Disruptions caused by attacks on cargo ships in the Red Sea have once again created volatility in retail supply chains. And experts say that recent actions show the issue is one that is unlikely to go away quietly.

On Thursday, Jan. 11, the U.S. and Britain conducted multiple airstrikes targeting the Iran-backed Houthi rebels, who have been targeting shipping vessels and cargo ships traveling the Red Sea. The rebels claim their attacks in the Red Sea are in response to the ongoing war in the Gaza Strip. Experts say the action could result in an escalation of the conflict and potentially worsen the outlook for international trade.

"In the short-term, ocean-freight costs for shipments bound for the East Coast from China will continue to increase," said Matthias Menck, principal consultant at supply chain and procurement consultancy Proxima. "Prices are already up by 52% since the crisis began, as ships look to reroute around South Africa as part of their trans-Atlantic route, leading to a delay of up to three weeks."

With East Coast shipments bearing the brunt, businesses are increasingly looking to reroute shipments entirely to go to West Coast ports, pushing up prices there as freight firms adjust their capacities, noted Menck.

"Businesses are now looking at spending $1,000 more for West Coast shipments than they were before the situation in the Red Sea began," he said.

Also, businesses will be facing delays in receiving stock, which will have the most significant impact on those selling seasonal goods, according to Menck.

"In the longer-term, lead times will increase for imported goods, meaning businesses will have to shift their normal decision-making timescales to ensure they have adequate stock," he added.

"It is impossible to predict what will happen next, and, with the geopolitical situation in the region showing no signs of abating soon, businesses need to brace themselves for long-term disruption and restart conversations around on-shoring or near-shoring to boost resilience," advised Menck.