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European manufacturers and retailers face ‘chaotic’ period after Red Sea attacks

Attacks on shipping in the Red Sea threaten to create a ‘‘chaotic” period for Europe’s manufacturers and retailers as supply chains are disrupted, logistics experts have warned.

Nearly all container ships have been rerouted away from the Suez Canal towards the longer route around the Cape of Good Hope since Yemen’s Iranian-backed Houthi militants last month stepped up attacks on vessels transiting the Gulf of Aden and southern Red Sea.

The shift mainly affects sailings between Asia and Europe, adding up to two weeks to the normal 35-day trip and creating long gaps between the arrivals of vessels in European ports.

Simon Heaney, senior manager in container research at London-based Drewry Shipping Consultants, said there was “definitely pain” for shipping companies’ customers as a result.

“In this interim period, it looks a little chaotic,” he said, although he expected shipping lines to establish a “new, more reliable network” in “fairly short order”.

Container lines, which handle movements of manufactured goods and components, mostly offer one service a week on their most popular routes.

Delayed arrivals of components have brought some car manufacturers’ production lines to a halt. If the disruption endures, retailers’ inventories will probably be depleted because of the delays, and companies shipping goods face surcharges as shipping lines try to recoup the costs of diversions.

Carlos Tavares, chief executive of Jeep and Peugeot owner Stellantis, said he expected the delays to push up shipping costs further for carmakers.

“I’m sure the logistics companies will be using the fact we are using [the ships] for a longer time to negotiate the cost,” he said.

Nils Haupt, spokesperson for Hamburg-based shipping line Hapag-Lloyd, said there could also be congestion at European ports as vessels arrived outside scheduled times.

“This week, we had eight ships of Hapag-Lloyd at Hamburg, which is a lot,” Haupt said.

Some ships are still travelling through the Suez Canal. Beijing has been neutral on the Houthi attacks but the disruption has raised freight rates, impacting Chinese companies, according to analysts. With Europe being a leading trading partner, the route is important to China, which this week called for “all relevant parties” to “ensure the safety of navigation in the Red Sea”.

France’s CMA CGM, the world’s third-biggest container shipping group, said it had rerouted ships around Africa, although some were still being sent through the canal when they could get French warship escorts.

Rodolphe Saadé, owner and chair of the Marseille-based company, said the CMA CGM’s schedules were being hit because of rerouting, delays waiting for Red Sea passage and build-ups at ports.

“It’s causing a lot of difficulties,” Saadé told the Financial Times, adding that the group was trying to help companies plan with constant updates on arrival times.

“You have windows when you’re supposed to arrive [at a port] . . . but now our schedules are in complete disarray and we’re not able to keep to timings,” he said.

Some carmakers relying on rerouted vessels for components have felt the impact, with Tesla in Germany, Volvo Cars in Belgium and Suzuki in Hungary halting certain vehicle production lines.

Houthi supporters take part in a protest against the US terrorist designation of the Houthis, in Sana’a, Yemen. The shift in shipping routes has been prompted by strikes by the Iranian-backed group on vessels transiting the Gulf of Aden and southern Red Sea © Yahya Arhab/EPA-/Shutterstock

The auto industry is particularly vulnerable because of its “just in time” manufacturing processes, without large stockpiles. Nevertheless, a slight increase in stock levels since the disruption in recent years has made the issues less severe than they otherwise would have been.

Germany’s Volkswagen said it had been receiving parts in Europe from Asia via the longer route since last month. It said the change had raised costs but avoided the production problems that had hit other manufacturers.

“Almost all the major shipping companies began rerouting their ships in December already,” Volkswagen said. “This will ensure that freight reaches its destination, albeit with a slight delay.”

In the food sector, France’s Danone said it would start enacting “mitigation plans”, including the use of alternatives such as air freight, if the Red Sea disruption lasted for more than two or three months.

In retail, Pepco Group, which owns the Poundland discount chain and operates nearly 3,500 clothing-focused discount stores across Europe, warned on Thursday that the situation was leading to higher freight costs and slower deliveries.

It added that shipping lines were levying surcharges on cargo deliveries to reflect the extra costs being incurred and warned that “a prolonged issue in the region could also impact supply in the coming months”.

General merchandise such as clothing is typically ordered months in advance, leaving retailers less exposed than companies relying on just-in-time delivery.

Lord Simon Wolfson, chief executive of clothing retailer Next, said the changed routing was “an inconvenience, not a crisis”. The group had plenty of stock in its warehouses and in stores, he said, adding: “We’re not going to suddenly go from having lots of stock in our shops to none.”

Simon Geale, executive vice-president of procurement at consultancy Proxima said while some retailers could use air freight to overcome the delays, that was probably an option for those with profit margins generous enough to absorb the extra costs.

Instead, retailers might have to start ordering goods from Asia earlier,” he said.

Nichola Mallon, head of trade for Logistics UK, a trade body, said her members were expecting to add two weeks’ lead time to orders until the disruptions in the canal were resolved.

She also complained about the surcharges that many shipping lines have levied on customers to cover the costs of diversion. Lines were saving on some costs, such as Suez Canal fees, by taking the longer route, she pointed out.

Mallon expressed hope, nevertheless, that shipping lines’ service patterns would “stabilise” as arrivals via the Cape settled into a regular pattern.

Until then, shipping customers will need to endure the supply chain unpredictability. “There’s pain in terms of having to wait more, and uncertainty about when your goods are going to arrive,” Drewry’s Heaney said.

Additional reporting by Adrienne Klasa in Paris and Sarah White in Marseille

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