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The Red Sea supply chain crisis has exposed glaring weaknesses in global transport that pose big questions about how our economy will work moving forward.

A British tea shortage may not have materialised, but it highlighted vulnerabilities in the global supply chain. : Nathan Dumlao, Unsplash Unsplash licence A British tea shortage may not have materialised, but it highlighted vulnerabilities in the global supply chain. : Nathan Dumlao, Unsplash Unsplash licence

The Red Sea supply chain crisis has exposed glaring weaknesses in global transport that pose big questions about how our economy will work moving forward.

A tea shortage in Britain is surely a sign that the apocalypse, or a near-national crisis at least, are nigh.

In February, supermarket chain Sainsbury’s warned of exactly that. In some of its stores signs announced “supply issues affecting the nationwide supply of black tea”. The presumed culprit: attacks on shipping in the Red Sea.

Linking the Mediterranean and the Indian Ocean, the Red Sea provides southern access to the Suez Canal, one of the most important trade lanes in the world.

A colossal amount of freight usually goes via this route. Around 90 percent of globally traded goods are carried by sea and, of that, 12 percent of trade goes through the Suez Canal. The Suez transports over USD$1 trillion worth of goods every year.

Since Houthi forces from Yemen hijacked a commercial vessel on November 19, 2023, attacks have been ongoing. The Houthis claim they target ships with links to Israel, the US and the UK in a show of support for Palestinians, but the targeted ships’ links to Israel have not always been clear.

What has been clear of the repeated attacks is the impact on global trade.

The initial multinational security initiative, which started December 18, 2023, was aptly called Operation Prosperity Guardian. Subsequently, US and UK forces, supported by other countries, have conducted air strikes to disrupt the Houthis’ ability to continue their attacks.

Military intervention in the region hasn’t helped make shipping secure in the region.

Two recent attacks show that the risk for ships and crews is real.

First, the sinking of the Rubymar, a Belize-registered bulk carrier carrying fertilisers, which will cause an environmental catastrophe, and more recently the first fatal attack on the M/V True Confidence, a Liberian-owned bulk carrier.

More than 80 percent fewer containers than normally expected are currently transiting the Red Sea.

For much of 2023, daily Suez Canal transits were above the previous year’s figures, but now they are sitting at around half the number of ships.

In February 2024, nearly 300 fewer ships per week traversed the Suez Canal in either direction. In the same period, re-routing via the Cape of Good Hope had almost doubled.  A detour of 2000 nautical miles might seem extreme, but there are few alternatives.

Going around Africa adds one-to-two weeks’ shipping time and around USD$1 million to a journey between Asia and Europe.

Greenhouse gas emissions can rise by 70 percent on a Singapore to Northern Europe round trip. That is because vessels travel faster to cover longer distances, eroding the environmental gains from slow steaming. But many shipping lines prefer this over the dangerous waters off the coast of Yemen.

As a result, the number of incoming ships in European ports like Hamburg, Germany, has decreased by 25 percent, with the Mediterranean Sea becoming a cul-de-sac. Container rates, especially between Asia and Europe, rose sharply (although never to the levels experienced by the COVID-19 induced supply chain crisis).

Container rates have recently fallen slightly, the first sign the global transport system is adjusting to the new norm where costs are higher and ships are tied up for longer on some of the main trade routes.

There is no other way than to adapt.

Looking at the main Asia to Europe routes, the only other options for sea transport are to go east through the Panama Canal, which is a considerably longer distance and adds travel time, or north through niche routes in the Arctic. Both routes are plagued by severe challenges.

The Panama Canal has been hit by extreme drought, which severely limits the number of ships able to pass through it. Indeed, ships between Asia and the US East Coast had been rerouted through the Suez Canal before the start of the Houthi attacks.

With that option now no longer feasible, companies have shifted cargo to the railway line running in parallel to the Panama Canal.

The extreme drought has brought to the forefront discussions about the defunct Nicaragua canal, or the construction of a 130km Maglev technology tunnel in northern Colombia.

With both great canals experiencing disruptions at the same time, all global trade flows are feeling some effects of the problems.

At first glance, going north seems appealing. The northern sea route is 40 percent shorter than the Suez Canal route. But it can only be used for around five months of the year because sea ice makes it impassable and running ships year-round could drastically hurt the environment.

At the moment, transiting these waters off the coast of Russia is affected by sanctions due to the Ukraine war. The same is true for the rail connection between China and Europe.

The remaining option is air freight. Shipping goods by air is much faster. Greenhouse gas emissions are about 47 times higher but, given the disruption on the seas, some shippers might be tempted to send their goods by plane instead.

For many of the goods that usually transit the Red Sea, flying is not an option. Transporting oil by air would be too dangerous. For bulky but relatively low-value goods like grains, the 12-16 times cost increase is not economically viable.

But for tea — a lightweight, thoroughly non-dangerous and vital part of the British lifestyle — a flight from Sri Lanka or India over all the sea transport troubles might be considered the smartest move.

However, air freight is having its own issues, particularly on the routes between Asia and Europe and North America. For once, it’s not because of geopolitical complications. Instead, it’s the enormous success of online retailers Shein and Temu.

Between them, around 9,000 tonnes of goods are shipped per day — that’s enough to fill 73 Boeing 747 jumbo jet freighters. Companies wanting to switch from sea to air freight find that all the capacity is being snatched up by the enormous demand for fast fashion.

The Red Sea crisis is not solely to blame for a potential tea shortage. It sits amid a wide array of transport disruptions around the world.

More broadly, the transport system struggles to keep pace with the consumerism and overconsumption that drive global supply chains. Disruptions at choke points like the Suez Canal are particularly likely to result in ripple effects.

The fears of a UK tea shortage turned out to be largely unfounded. Industry representatives agreed that there were some ongoing issues with shipments, but that stock levels were good and any impact on consumers should be minimal.

However, this storm in a teacup shows just how vulnerable countries are to the geopolitical weaponisation of supply chains which is increasingly becoming a part of economic statecraft.

Dr Sarah Schiffling is an Assistant Professor in Supply Chain Management & Social Responsibility and the Deputy Director of the HUMLOG Institute at the Hanken School of Economics, Finland. 

Dr Nikolaos Valantasis Kanellos is a Lecturer in Logistics and Programme Coordinator of the MSc Logistics and Supply Chain Management course in the School of Business Technology, Retail, and Supply Chain at TU Dublin.

Originally published under Creative Commons by 360info™.

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