Shortages in the Red Sea fuel inflation fears again
Published: Wednesday, Jan 17th 2024, 13:20
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The attacks on ships in the Red Sea are forcing many shipping companies to take detours. This is making raw materials and goods more expensive, which in turn could have an effect on inflation, which was thought to have been defeated. According to experts, however, an unchecked rise is not imminent.
In normal times, 15 percent of the world's commercial sea freight traffic passes through the Red Sea - including 8 percent of the global grain trade or 12 percent of the oil transported globally by ship, according to figures from the International Logistics Association (Fiata).
However, many ships are now being diverted via the Cape of Good Hope due to the attacks by the Houthi rebels. "This extends the journey time to Europe by 10 to 15 days," says Philip Damas from the consulting firm Drewry. He estimates that around 30 percent of transport capacities between Asia and Europe are currently affected.
This is having an impact on the availability of raw materials and products. Car manufacturers Tesla and Volvo, for example, have already announced that they are reducing production in Europe due to a lack of parts, and Ikea has warned customers of delivery delays.
According to Damas, however, the delay is only one problem. The detour also increases the costs for shipowners.
Prices have tripled
According to the analysis company Xeneta, prices for transports between Asia and the Mediterranean have tripled recently. On this route, the spot price for a standard container (FEU) has risen from 1875 dollars in mid-December to 5651 dollars last Tuesday. In some cases, prices of 8000 dollars or more are being paid.
The situation is reminiscent of the blockade of the Suez Canal in March 2021 by a stranded container ship. This incident had a significant impact on shipping and global trade at the time and contributed to the rise in global inflation. "The blockage of this important waterway led to higher shipping costs and a shortage of goods, which put upward pressure on prices," analyst John Plassard from the bank Mirabaud told the news agency AWP.
Other situation
But for Arthur Jurus, analyst at Oddo BHF Switzerland, the current situation cannot be compared with that of 2021. In particular, despite the increase, freight prices are nowhere near the level they were then - not least due to the fall in oil prices. "The effects on inflation are therefore limited," he concludes.
The experts at Schroders Bank also see it this way: in their opinion, there are several factors that suggest "that the problems in the Red Sea are unlikely to lead to a major increase in inflation".
How long does it take?
Demand is currently weaker than in the post-pandemic period, when extensive monetary and fiscal policy incentives boosted the global economy. This is slowing growth, which is dampening inflation.
And on the supply side, the global economy is in much better shape than it was in 2021. The pandemic brought production to a complete standstill back then, but now there are no more interruptions.
But they don't want to give the all-clear: "A lot will depend on how long the current disruptions will last."
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