Expert comment: How will global trade be affected by the Red Sea attacks?

Categories: Salford Business School

Dr Jonathan Owens, Senior Lecturer in Salford Business School, discusses what the Red Sea attacks could mean for global supply chains.

Jonathan Owens

The Red Sea leading to the Suez Canal is the world’s busiest manmade waterways, providing essential supply route for oil, natural gas, and general shipping container cargo between Asia and Europe. It supplies about 12% of the global goods that each day or $2.2 billion worth of trade that passes through each day. There would be around 10 million barrels that would of oil and petrol that would pass this route each day. Already we have seen oil prices rise on the market, and with the situation not showing any signs of improvement it’s only a question of time before the we see the product rises to compensate for the rising supply chain costs. However, currently there is no general panic in UK/EU food supply chain imports yet due to these ongoing challenges as these tend to come from the EU. However, a big concern is exporting in this field.

The safer and extended supply route that many shipping companies are enforced to take in order not to invalidate their insurance is adding an extra 3500 nautical miles per trip, an additional 9-12 days at sea and burning extra fuel will now start to unbalance the global supply chain as we saw in the days of the global pandemic.  The longer this goes on we could have shipping containers that may not be in the right area of the world, therefore it will not be possible for newly scheduled cargoes to be transported in the planned containers. Subsequently, we may see a return of companies competing for container space. This raises the concern of stockouts, and the likelihood that customers must wait longer for their orders because suppliers will be out-of-stock, price spiking, etc. What is happening in the Red Sea may have to be accepted that it could go for a long time; much longer that the short-lived Ever Given incident in 2021; and the UK and Global Logistics sector will start noticing a domino effect in the supply chain process.

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