Issues at the Red Sea lead to global trade impacts


In recent months the ongoing Red Sea crisis that threats maritime security is raising concerns for global trade. The proximity of the tension to the strategic Suez Canal, a vital artery for international shipping connecting Asia, the Middle East, and Europe, has prompted shipping companies to take precautionary measures.

Faced with escalating risks, shipping companies operating on the crucial route between Asia, the Middle East, and Europe have been compelled to divert cargoes away from the Red Sea and opt for the longer but safer route around the Cape of Good Hope. This precautionary action has led to delays in shipments and a reduction in the availability of containers, disrupting supply chains and adding considerable transit times. The uncertainty surrounding the security situation in the Red Sea has prompted six of the world’s top 10 largest container shipping groups, representing 62% of global capacity, to reroute their vessels away from the affected area.

These shipping disruptions have had a significant impact on supply chains, leading to extended lead times and increased prices of European flexible packaging materials in the first quarter of the year. While shipments via the Red Sea-Suez Canal route typically take approximately 22 days, circumnavigating through the Cape of Good Hope extends the journey to around 37 days. Such delays have exerted pressure on global trade dynamics, with implications for various industries reliant on timely deliveries.

Of particular concern is Europe’s heavy reliance on imports of aluminum and chemicals, like Polypropylene, LDPE and PET Resins, predominantly transported via the Suez Canal from Asia and the Middle East. Guido Aufdemkamp, Executive Director of FPE (Flexible Packaging Europe) commented on the subject: “If anything there is more uncertainty in the market than there was last year. Escalating tensions in the Middle East generally and the continued threat to shipping in the Red Sea have caused major disruption in the supply chain.

The situation escalated further due to the noted demand increase and the restocking effect, with reports indicating instances of panic buying as businesses seek to bolster their inventory levels against potential shortages.