Top 8 Industries Affected by The Red Sea Crisis in January 2024

Resilinc’s President of Government/Defense/Aerospace, Peter Guinto, “The Claman Countdown” on Fox Business to discuss the supply chain impact of the cargo ship attacks in the Red Sea.

Which industries and companies are currently impacted in January 2024?

The attacks have led to disruptions in the flow of commercial goods through the Suez Canal, which accounts for about 12 percent of global trade. Containerized rates have quadrupled, and delivery times have increased by two weeks. This disruption affects various industries, including suppliers for global retailers and car manufacturers. Below, we take a deeper dive into each affected industry.

#1 Suppliers for Global Retailers: Seasonal Items  

Companies like Crocs, IKEA, Walmart, Home Depot, and Amazon are already experiencing delays in product deliveries, impacting their operations and supply chains. Seasonal items such as spring clothing, footwear, home goods, patio furniture, and pool supplies are especially affected. In the longer term, lead times for imported goods will increase, forcing businesses to adjust their decision-making timeframes to ensure they have adequate stock.

The British Retail Consortium warns that higher transportation and shipping insurance costs could lead to delays and price hikes, potentially affecting product availability over the coming months. As some of the world’s most significant shipping lines pause Red Sea transits and opt for longer routes, businesses are left to navigate the challenges of increased expenses and prolonged delivery times, with potential repercussions on global supply chains.

#2 Automotive Companies

Major automakers such as Toyota, Hyundai, and Kia are experiencing significant delays due to rerouted vessels, with up to 21 extra days added to trips between Asia and Europe. Kia, in particular, faces vulnerability to delays, affecting its just-in-time manufacturing model. German automaker Volkswagen has stated that rerouting of shipments would result in around two weeks longer journeys.

Swedish automaker, Volvo Cars, noted that it was affected by the shipping hindrances and was investigating the potential impact. As of January 11, Volvo Car AB has suspended production at its plant in Ghent, Belgium, for three days. For now, the company doesn’t expect the disruption to impact global wholesale or production targets.

Telsa has also announced plans to pause production in Berlin, Germany as a result of the Red Sea attacks. The company states that rerouting ships has caused gaps in the supply chain. Chinese automakers—such as Geely—have been rapidly increasing electric vehicle deliveries to Europe as shipping firms reroute vessels around southern Africa. Finally, Stellantis is turning to airfreight to cope with temporary supply disruptions.

#3 Energy and Oil

Oil companies like BP and Equinor are rerouting tankers around the Cape of Good Hope, adding costs and transit time. TORM, a Danish fuel tanker company, has stopped allowing its fleet to sail through the southern Red Sea due to overnight strikes in Yemen, adding to disruptions in oil markets. Norwegian energy company Equinor ASA has also rerouted vessels heading towards the Red Sea.

Energy supply disruptions could impact commodity prices and the global economy. Experts warn that prolonged disruptions could lead to “stagflationary” effects, characterized by stagnant economic growth coupled with high inflation. An escalation in conflicts, such as the Israel-Hamas conflict or a shift in Houthi targets to oil tankers and bulk carriers, could have severe implications for the global economy. These developments could disrupt energy supplies, leading to spikes in energy prices with far-reaching effects on other commodity prices.

#4 The Indian Market: Petroleum, Chemicals, and Cereals

The uncertainty in the Red Sea has already impacted the Indian market, with concerns about and disruptions to trade routes. Currently, key Indian export sectors like petroleum products, cereals, and chemicals are impacted. In FY 2023, about 65% of India’s crude oil imports—worth $105 billion—passed through the Suez Canal. Indian shippers have diverted some services around the Cape of Good Hope due to the attacks, according to the Financial Times. If the attacks continue, this crisis could trigger inflation due to higher global freight and insurance rates, along with supply chain disruptions.

#5 Pakistan’s Salt Export Industry

The salt export industry, a vital economic contributor, is threatened by rising shipping costs and faces an unprecedented crisis. The government has urged the Pakistan National Shipping Corporation (PNSC) to contribute to the ongoing crisis by enhancing its capacity by adding more ships that can temporarily operate on the Red Sea route, which can benefit salt exporters.

#6 Groceries and Food

The Suez Canal is a significant route for foodstuffs such as grain and palm oil—a key ingredient in products from chocolates to ready meals—which could result in a shortage of Valentine’s Day and Mother’s Day chocolates. The UK’s biggest supermarket chain, Tesco, has warned there could be price increases due to the Red Sea ship attacks. Trade experts also say food inflation could hit staples such as rice, tea, coffee, and meat. Tailwind Shipping Lines, a unit of the German discount supermarket chain Lidl, which transports non-food goods for the grocery store, states that it was sailing around the Cape of Good Hope for now. Multinational food-products company Danone has also diverted shipments and is considering mitigation plans.

#7 Chemicals and Fertilizers

Several chemical and fertilizer companies have rerouted shipments. Companies such as Kemira Oyj, a Finnish chemicals company, voiced concerns as shipping companies opted to reroute vessels. Meanwhile, MOSAIC, a leading U.S.-based fertilizer company, acknowledged the need to reroute several U.S.-bound shipments to navigate the challenges posed by the Red Sea incidents. Yara International ASA, a fertilizers manufacturer based in Norway, reported a mild impact on its operations due to the challenges unfolding in the Red Sea.

#8 Other: Appliances and Tires

Whirlpool Corporation, a major U.S.-based manufacturer and marketer of home appliances, is keeping a vigilant eye on logistics issues in the Red Sea, the Suez Canal, and the broader region. Its approach aims to mitigate risks and navigate potential disruptions in the supply chain.

Meanwhile, the repercussions extend to other products, such as the case of Michelin, which decided to halt production at a factory in Spain due to the shortage of the critical rubber supply needed for manufacturing, exemplifying the far-reaching impact on industries beyond the immediate maritime and trade sectors.

Increased Shipping Rates from Red Sea Crisis 

The Red Sea crisis is expected to keep freight rates elevated through at least February. The cost for a 40-foot container journeying from North Asia to Europe has surged over 600%, reaching $6,000 since the outbreak of the Israel-Hamas war in October. Rates for a 40-foot container from North Asia to the U.S. East Coast have surged by 137% to $5,100 since early October. Similarly, rates from North Asia to the U.S. West Coast have risen by 131%, reaching $3,700 over the same period, which Freightos said may reflect a shift to the West Coast to avoid East Coast transit times. Carriers have also announced surcharges of $500 to $2,700 per container.

Surcharges for all Asia to North America shipments will start in mid-January. Freight rates may increase in the short to mid-term. However, the trend is not expected to last due to an imbalance in supply and demand and no major sign of a revival. The disruptions primarily affect U.S. East Coast ports, even though most cargo from Asia to the East Coast typically travels across the Pacific and through the Panama Canal. Retailers are reporting delays of up to two weeks.

Looking Ahead: How will the Red Sea Crisis impact supply chains? 

The ongoing nature of the crisis raises concerns about when and how it will be resolved. Beyond the Red Sea situation, other factors like panic shipping in China due to concerns about insufficient shipping capacity before the Chinese New Year have driven up prices. Ancillary costs, including surcharges and insurance premiums, have also risen, with war risk insurance costs doubling in just one week.

Stay ahead of the latest supply chain updates from the Red Sea crisis. Resilinc’s supply chain monitoring platform, EventWatch^AI, sends tailored supply chain alerts straight to your inbox when a potential disruption to your supply chain occurs. Scanning over 104 million sources and sites worldwide, 24/7—so you can save time and act quickly. Learn more about how EventWatch^AI takes you from notification to mitigation in minutes.