Red sea crisis: Global trade shock

In the unfolding narrative of the current supply chain challenges encircling the Red Sea, Dr. Pramod Sant, former Vice President and Head of Import, Export, and Customs, Siemens, offers a seasoned perspective.

His insights delve into the unexpected upheaval that has gripped the global supply chain in the wake of Houthi attacks on ships utilising ballistic missiles and drones, taking precedence over previous concerns surrounding the Israel-Hamas conflict.

Two months ago, Dr. Sant explored the potential repercussions of the regional strife, anticipating its escalation and the possible involvement of additional actors such as Hezbollah. However, the recent turn of events has shifted the focus to a new and formidable disruption, prompting a re-evaluation of the intricate dynamics at play in the Red Sea region.

Observing international trade from the Red Sea, the shortest route between Europe and Asia, is crucial. The Suez Canal and Red Sea constitute one of the world’s busiest shipping routes, facilitating around 12 percent of global trade and transporting over nine million barrels of oil daily. In 2022, the international waterway saw a total of 23,583 ships, marking a 15 percent year-on-year increase.

Notably, the 2021 Suez blockade, caused by the grounding of the Ever-Given container ship, disrupted $9.6 billion worth of goods daily.

The attack on more than 20 ships has caused global panic and disrupted the supply chain. This impact has resulted in a larger disruption than the Russia-Ukraine and Israel-Hamas wars.

Wait and Watch: Ships currently face a challenging decision: wait for the threat to subside or opt for a longer route around Africa.

Rerouting Challenges: The redirection of vessels isn’t a straightforward solution, impacting operational costs and delivery schedules. Despite challenges, over 300 vessels have detoured around Africa via the Cape of Good Hope, adding over a week and 3,500 nautical miles to their journey.

International Pressure for the Red Sea Route: Initially halted due to security concerns, major shipping companies, under international pressure, reluctantly plan to resume using the normal Red Sea Route.

Lots have been published, talked about, and debated on the effect of the Red Sea disruption.

Positive Developments

• Operation Prosperity Guardian: The U.S. spearheads a coalition of nations to enhance ship safety.
• U.S. Military Assurance: Assurances from the U.S. military seek to reassure shipping companies about the safety of navigating the Red Sea and Suez Canal.
• India’s Strategic Initiative: India deploys five top-tier guided missile destroyers for monitoring from the Red Sea to the Indian Western Coast. Boeing P8I warfare aircraft further bolster surveillance efforts.

In a collective effort, the world ensures the free flow of commerce and navigation, preventing non-state actors from controlling crucial commercial corridors.

Amidst the Red Sea crisis, the supply chain adapts with increased shipping capacities, collaborative strategies, and alternative routes, ensuring the continuous flow of commerce and mitigating disruptions.

• Capacity Expansion by Shipping Companies: Utilising Increased Capacity to Introduce Additional Shipping Capacity on African Routes.
  • Collaborative Supply Chain Management: Collaboration among supply chain experts and logistics providers to explore diverse options based on commodities and urgency.
  • Accessible Sea Routes: Utilising ports such as Jeddah, Djibouti, Berbera, Port Sudan, Aden, Hodeidah, and other unaffected ports in the Middle East/Arabian Gulf.
  • Airfreight from the UAE: Opting for airfreight services from the UAE for the swift transportation of urgent cargo.
  • Cost-Effective Land Transport: Choosing land transport from Khalifa Port and Jebel Ali as a more cost-effective option for the region.
  • Boost to Rail and Multimodal Routes: Promoting the use of rail and multimodal routes as alternatives to navigate troubled areas.

The Red Sea crisis challenges supply chain resilience, prompting adaptation and innovation. Drawing on lessons from past disruptions, the industry embraces proactive measures, diversifying shipping options. This turbulent period becomes a catalyst for evolving strategies and fortifying the supply chain against unforeseen challenges.