How Red Sea disruption rattles British industry

Businesses used to supply chain issues are still concerned, report Szu Ping Chan, Chris Price and Melissa Lawford

Out of stock. Those words may be coming back to haunt shoppers just as it appeared that supply chains were beginning to go back to normal. The boss of shipping giant Maersk warned yesterday that the “brutal and dramatic” disruption to shipping through the Red Sea caused by Houthi rebel attacks could last for months, raising fears of price rises and empty shelves.

Supermarket chiefs are once again warning about higher prices. Ken Murphy, Tesco’s chief executive, says the disruption in the Suez Canal risked sending the price of some items higher.

At Marks & Spencer, chief executive Stuart Machin is anticipating delays of new clothing and homeware items in February and March.

“We’re conscious of the costs and more importantly the availability of new ranges,” he said this week. Yemen-based rebels began attacks on commercial ships moving through the Red Sea in October. Around 12pc of seaborne trade passes through the waterway, which is the primary passage for goods travelling between Asia and Europe.

The plunge in the number of shipping containers travelling through the Red Sea has been dramatic since the attacks began. An average of 200,000 containers per day travelled the trade route last month, compared to around 500,000 in November, according to Germany’s Kiel Institute.

The current volume is 66pc below the levels expected for this time of year. Big shipping companies including Maersk have announced they are boycotting the area.

Vessels coming from Asia are instead sailing around South Africa and the Cape of Good Hope, a detour that takes between seven and 20 days longer.

Murphy said yesterday: “If they do have to go the whole way around Africa to get to Europe, it extends shipping times, it constrains shipping space and it drives up shipping costs. So that could drive inflation on some items, but we just don’t know.”

Longer journeys mean more money spent on fuel and wages as staff spend more time at sea. A journey between China and Northern Europe currently costs more than $4,000 (£3,150), compared to around $1,500 in November, according to Kiel.

While this is far from the drastic spike seen during lockdown, higher shipping prices will inevitably push up prices at the checkout.

In another sign of escalating tensions in the region, Iran seized an oil tanker off the coast of Oman, pushing oil prices closer to $80 a barrel. There are differences to the disruption to shipping today and that seen during the global pandemic and in the aftermath of Russia’s invasion of Ukraine.

First, the good news. A surge in food prices is unlikely to be repeated. Sainsbury’s said this week it imports some wine through the Suez Canal, meaning it is vulnerable to price rises and shortages. However, almost three quarters of Britain’s food imports come from the EU, according to analysis by Retail Economics, a consultancy.

Clive Black, at Shore Capital, says: “A lot of the rest of it comes from the likes of South Africa and Latin America. Relatively little food comes from Asia. And what does come tends to arrive by air rather than on ships.”

Still, Black stresses that China remains the world’s factory for many of the other goods we buy. Clothing and footwear, as well as furniture and electricals, are likely to see the biggest impact as the disruption continues.

“While the initial delay could be 10 to 14 days, thereafter it can start to become a month and so it goes because of the time it takes ships to get back,” Black says.

Almost half of furniture imports into Europe come from Asia, according to Moody’s. Ikea has warned of potential shortages of some of its furniture. The Swedish flatpack giant said last month that it was “evaluating other supply options to secure the availability of our products”.

Then, there are less obvious but no less disruptive items. Around 40pc of non-metallic mineral products imported into Europe from Asia travel through the Red Sea. These products are used to make things like cement, ceramics and glass.

Half of all toys imported into the UK and around two fifths of homewares come from China alone, according to Retail Economics.

Big ticket items such as fridges, TVS, machinery and cars also face disruption. Geely, the Chinese automotive giant that owns brands including Volvo and Lotus, warned days before Christmas that the attacks in the Red Sea would delay delivery of its electric vehicles to Europe.

Jonathan De Mello, founder of JDM Retail consultancy, says the disruption is hitting fashion chains as they plan to launch spring collections. “The majority of retailers will have their designs locked in even by autumn, so delays have a bigger impact.”

Even builders are feeling the impact. The boss of Taylor Wimpey, one of Britain’s biggest housebuilders, said her company was watching the situation “carefully” amid concerns that crucial supplies could be disrupted. Jennie Daly highlighted supplies of a type of plastic called polypropylene, which is used in lifting straps employed on building sites, as a key worry.

“That is not a base element for supply chain requirements,” she says. “But if you’re still waiting on the last component to an element, then the whole supply chain stops.”

Other affected items could include components for white goods such as fridges Taylor Wimpey installs in its new builds, Daly says. “There’s a very, very limited risk to that but it’s certainly something that we watch”.

While higher prices are inevitable for some products, supply chains are more adaptable than they once were. Events over the past decade have forced the industry to adapt quickly to change, which could limit the impact on prices.

Richard Lim, chief executive of Retail Economics, says: “The pandemic and Brexit have made retailers much more acutely aware of supply chain disruptions and the fact that when the weakest link in the chain is broken, there’s a concertina effect.”

Many companies have “tried to build in more flexibility and contingency planning around these types of shocks,” he says.

Murphy at Tesco has also tried to allay fears of big price rises.

“This is one of a series of supply chain challenges that we’ve faced over the last four years and I’ve been really impressed by our supply chain team’s ability to overcome those challenges, plan for them, and work around,” he says. “As we stand here today, they are projecting minimal impact on our business. We don’t have as much product coming through the channel as other people do, and then we have alternative sources if we need.”

Others are not so optimistic. Vincent Clerc, chief executive of Maersk, told the Financial Times: “It’s unclear to us if we are talking about re-establishing safe passage into [the] Red Sea in a matter of days, weeks or months ... It could potentially have quite significant consequences on global growth.”

‘The pandemic and Brexit have made retailers more aware of supply chain disruptions’

‘If you’re still waiting on the last component to an element, then the whole supply chain stops’