The slowdown in maritime traffic passing through the Suez Canal due to clashes in the Red Sea could push up the prices of consumer goods such as furniture and apparel coming from Asia, according to EY-Parthenon senior economist Lydia Boussour.
Houthi rebels, a Yemeni militia group, has been attacking commercial vessels traveling through the Red Sea disrupting international shipping. Some ships have been forced to take a longer route through southern Africa to avoid running into the rebels but that has slowed delivery of their cargo and analysts are worried that it could lead to a jump in prices. Houthis say that they instigated the attacks in response to Israel's military operation in Gaza.
"The disruptions have exacerbated existing challenges to global shipping as the Panama Canal – another key artery for global trade – is grappling with a severe drought that is restricting transit capacity," Boussour said in a note.
Experts have told Newsweek that about 40 percent of maritime shipments from Asia to America come through the Panama Canal. A drought in that passageway has reduced the number of ships going through it. Limited access to the Suez Canal is adding more pressure to the supply of goods from Asian countries to the West. Boussour points out in her note that about 15 percent of global trade and between 25 and 30 percent of global container shipments go through the passage.
There is emerging evidence that the delays are starting to increase the cost of shipping which could present a risk to inflation. Boussour suggested that a doubling of the cost of shipping could lead to 0.7 percentage point increase in global inflation, citing research from the International Monetary Fund.
"In terms of goods most at risk from the Asia to Europe route, consumer products, apparel, furniture and household appliances could experience the greatest disruptions," Boussour said. "Chemicals, flat-rolled steel and automotive equipment could also be constrained."
The effects of the delays may hurt European markets a lot more than the U.S. but the reality of the Panama Canal being also limited for shipping could more pressure on goods that are transported to the American East Coast.
Boussour cautioned against comparing the disruption to global shipping currently happening in the Red Sea to what happened during the pandemic when supply-chains bottleneck sent prices soaring to record highs.
"While the impact will depend on how long and how severe the disruptions prove to be, we believe the situation is unlikely to be as severe and damaging to the supply chains as the pandemic-induced disruptions for now," she said in her note.
"The current balance of supply and demand in the goods market is less strained than in the aftermath of the pandemic; ports are not congested; and there is more freight capacity available than during the pandemic, which could help limit the upward pressure on container rates."
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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Omar Mohammed is a Newsweek reporter based in the Greater Boston area. His focus is reporting on the Economy and ... Read more
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