Two major factors have weakened the impact of the Red Sea situation on the inflation situation...
Analysts at Moody's Investor Service (Moody's Investor Service) said on Thursday that despite cargo delays and rising transportation costs due to attacks on merchant ships in the Red Sea, weak demand and sufficient ship supply are weakening the impact of this negative event on inflation.
Ships carrying everything from furniture and clothing to food and fuel are shifting from the nearby Suez Canal trade shortcuts to longer, more expensive routes around Africa. Changing the route would allow the ship and crew to avoid being attacked by drones and missiles by the Houthis allied with Iran. The Houthis said on Thursday they would seek to escalate operations in the Red Sea region.
Container ships are the number one users of the Suez Canal route. Most people are avoiding the Red Sea because the Red Sea situation has become the biggest disruptor to global trade since the beginning of the COVID-19 pandemic.
Still, Moody's Transportation Department analyst Daniel Harlid (Daniel Harlid) said these detours are not expected to have a significant impact on inflation because they are not demand-driven.
Due to the longer sailing time, the speed at which ships return to the point of departure is slower, so re-routing around Africa requires 6 to 10 per cent more ships, causing spot freight rates on some routes to rise by more than 100%.
However, these increases were achieved on the basis of previous low freight rates, and shipping experts expect them to return to normal levels. Before the Houthis launched an attack in November last year, shipowners were still trying to fill existing ships with cargo, not to mention that they are now adding new ones.
According to data from maritime data company Clarksons Research, the total capacity of the container shipping industry will increase by 7% to 8% in 2023 and 2024.
The automotive industry seems to have borne the brunt of this upheaval. Tesla and other manufacturers have temporarily suspended production in Europe due to component shortages. Auto parts distributor LKQ said on Thursday that it is increasing orders to protect its European business from disruptions.
Although British grocers are concerned about a possible shortage of tea, and some fashion retailers have warned that spring products will be delayed, they have not experienced conditions that cause empty store shelves, such as supply shortages during the pandemic.