Red Sea crisis runs risks of new inflation

The disruption of cargo ships in the Red Sea due to attacks by Houthi militants from Yemen is causing global shippers to redirect vessels, potentially leading to increased prices for goods.

Swedish furniture giant IKEA announced this week that it was exploring options to secure the availability of its products that are mainly delivered through the Red Sea and the Suez Canal from Asian factories to Western markets.

“The situation in the Suez Canal will result in delays and may cause availability constraints for certain Ikea products,” Oscar Ljunggren, a spokesperson for Inter IKEA Group, told Bloomberg. Meanwhile, Abercrombie & Fitch is planning to shift from sea freight to air transport whenever possible to mitigate disruptions, as reported in an email to suppliers.

Earlier this week, Danish shipping group Maersk said it had rerouted vessels around Africa via the Cape of Good Hope due to the heightened risk of attacks, reducing the effective capacity of an Asia-Europe trip by 25%. German transport company Hapag-Lloyd followed suit. However, sending vessels around Africa increases a round-trip journey by nearly two and a half weeks, inevitably lowering shipping capacity and raising costs.

The Suez Canal is a vital transport artery that handles about 15% of the world’s shipping activity, including nearly 30% of global container trade. The recent attacks, occurring amid the Israel-Hamas war, have triggered a new trade and shipping emergency, reminiscent of the 2021 incident where one of the largest container ships blocked the canal for six days, resulting in a daily cost of $9.6 billion to global trade.

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