supply chain issues set to continue despite Gaza ceasefire

The world’s major shipping companies say they won’t^[1] be sending vessels back to the Red Sea any time soon despite a pledge by Iran-backed Houthi militants in Yemen not to attack them as long as the ceasefire in Gaza holds.

French shipping and logistics company CMA CGM said in a statement^[2] on January 25 that the improved stability was “a positive but fragile sign” for the industry, and that it would continue to prioritise alternative routes.

Since November 2023, one month after the war in Gaza began, the Houthis have launched missile and drone attacks against roughly 190 commercial and naval ships^[3] in the Red Sea’s Bab al-Mandab Strait. The group claims to have carried out attacks on vessels connected with Israel, or heading to its ports, in solidarity with Palestinians in the Gaza Strip. Though this has not always^[4] been the case.

These attacks have prompted many shipping companies to stop using the Red Sea – a route that around 12% of global trade^[5] usually passes through – and divert around the southern tip of Africa. This route adds more than 7,000 nautical miles on to a typical round-trip voyage. The number of commercial ships using the Suez Canal to pass between the Mediterranean and the Red Sea plummeted^[6] from over 26,000 in 2023 to 13,200 in 2024.

Supply chains have had to deal with higher shipping costs, product delivery delays, and increased carbon emissions as a result of this diversion. The Gaza ceasefire gave some hope that the disruption would finally end. But shipping lines will not hurry back to the region until long-term security is guaranteed.

During the early stages of the crisis, moving a container from Shanghai in China to Europe cost approximately 250% more^[8] than before the war in Gaza began. This was largely due to increased fuel costs and higher insurance premiums. Freight rates (the price companies pay to transport goods) remained high throughout 2024, despite some fluctuations.

The cost of moving a 40-foot container from Shanghai to Rotterdam in the Netherlands, for example, surged from around^[9] US$4,400 on average in January to above US$8,000 by August. This had dropped to US$4,900 at the end of the year.

It is too early to say whether these costs will be passed on to consumers in the form of higher prices – full transmission through the supply chain to consumer prices can take upwards of 12 months. But some estimates suggest^[10] global consumer prices could rise by 0.6% on average in 2025 as these increased shipping costs filter through the supply chain.

Diverting around southern Africa also resulted in delays in the delivery of many goods and components. The proportion of container ships that arrived on schedule dropped from 60%^[11] on average worldwide in 2023 to about 50% throughout 2024. This created congestion at ports^[12] because ships often arrived at their destination later than planned, resulting in further delivery delays.

Unreliable transit times are a significant issue for supply chains because they make it difficult for businesses to plan inventory and coordinate production schedules. Indeed, several vehicle manufacturers, including Tesla and Volvo, temporarily suspended manufacturing^[13] in early 2024 due to a lack of components. And food supply chains, including those for avocados, tea and coffee^[14], were also affected by delays.

Since then, many companies have adapted by increasing their safety stock levels and transporting cargo using alternative modes of transport like air and rail^[15]. Some European firms have also adopted a strategy called “nearshoring”, where they source^[16] products from regions closer to home such as Turkey and Morocco instead of relying on suppliers in Asia.

The longer route around southern Africa requires that ships travelling between Europe and Asia use around 33% more fuel^[17] on average than they would use by travelling through the Red Sea at the same speed.

Over the past decade, most shipping companies have employed a “slow steaming” policy to economise on fuel use and minimise their carbon emissions. But diverted ships have been travelling around 5% faster^[18] than usual in an attempt to minimise delays. The increased vessel speeds will have caused the associated emissions toll to rise – large container vessels require 2.2% more fuel^[19] for every 1% increase in speed.

More data is required to determine the precise amount of additional emissions caused by diverting shipping away from the Red Sea. But estimates suggest^[20] that approximately 13.6 million tonnes of CO₂ were emitted by ships rerouted from the Red Sea between December 2023 and April 2024 – equivalent to the carbon emissions of nine million cars over the same period. If ships continue to avoid the region, the increased emissions could amount to 41 million extra tonnes of CO₂ per year.

Some cargo has also shifted^[21] from sea transport to air freight, which has a far greater environmental footprint. Shipping a kilogram of product by long-haul air freight generates at least 50 times more^[22] CO₂ emissions on average than container shipping.

Before returning to the Suez Canal, container lines will want to see a prolonged period of stability around the Red Sea. This is due, in part, to safety and security concerns related to the crew, cargo and the ship.

But shipping companies also have operational challenges to keep in mind associated with the scheduling of port calls and voyages. Shipping lines will find it difficult to switch back to the longer route around Africa immediately if attacks in the Red Sea resume.

And, at least for now, the situation in the Bab al-Mandab Strait remains unpredictable. In a televised speech on January 20, Houthi leader Abdul-Malik al-Houthi warned^[24]: “We have our finger on the trigger.”

With other disruptions continuing to affect global shipping, such as port strikes, low water levels in the Panama Canal and extreme weather events, supply chain issues are likely to continue throughout 2025.

References

1. ^{^} say they won’t (www.bloomberg.com)
2. ^{^} statement (www.cma-cgm.com)
3. ^{^} 190 commercial and naval ships (commonslibrary.parliament.uk)
4. ^{^} has not always (www.politico.eu)
5. ^{^} around 12% of global trade (unctad.org)
6. ^{^} plummeted (www.marineinsight.com)
7. ^{^} Dimitrios Karamitros / Shutterstock (www.shutterstock.com)
8. ^{^} approximately 250% more (unctad.org)
9. ^{^} surged from around (www.drewry.co.uk)
10. ^{^} some estimates suggest (unctad.org)
11. ^{^} dropped from 60% (www.sea-intelligence.com)
12. ^{^} congestion at ports (www.mpa.gov.sg)
13. ^{^} temporarily suspended manufacturing (www.itf-oecd.org)
14. ^{^} avocados, tea and coffee (unctad.org)
15. ^{^} air and rail (www.cnbc.com)
16. ^{^} where they source (www.theguardian.com)
17. ^{^} 33% more fuel (www.itf-oecd.org)
18. ^{^} around 5% faster (unctad.org)
19. ^{^} 2.2% more fuel (www.itf-oecd.org)
20. ^{^} estimates suggest (www.inverto.com)
21. ^{^} has also shifted (www.iata.org)
22. ^{^} 50 times more (www.koganpage.com)
23. ^{^} David G40 / Shutterstock (www.shutterstock.com)
24. ^{^} warned (www.washingtoninstitute.org)