How the Red Sea attacks are impacting the supply chain 
and what it means for you

January 2023

Tensions in the Middle East are continuing to escalate and are now posing a serious risk to wider conflict between the US and Iran. Continuous attacks by the Houthi militia group on the Red Sea route – one of the major routes for up to 30 per cent of global container traffic (1) – has forced many global shipping companies such as Maersk, Mediterranean Shipping Company, Flexport and Hapag-Lloyd to use an alternative route through Africa’s Cape of Good Hope.


Cause of the escalation

Since the attack on Gaza on 7th October 2023, the US had refrained from direct confrontation, opting instead to launch Operation Prosperity Guardian (2) to protect sea lanes. This defensive strategy had enabled Maersk, amongst other companies, to resume sending vessels through the Red Sea and Suez Canal for a time.

But an attack by the Houthi militia group on a Maersk commercial shipping vessel travelling on the Red Sea route on 31st December 2023 prompted defensive retaliation from the US government, resulting in the destruction of three Houthi ships and killing 10 militants. Since then, Maersk has halted its ships from passing through the Red Sea until at least 9th January 2024, where it will decide whether it will continue re-routing ships through the Cape of Good Hope.


Impact on the supply chain

It’s reported that around 350 ships have been forced to re-route through the Cape of Good Hope, adding approximately ten days to a fortnight onto shipments and £1.6m in extra costs to those scheduled to port in Asia and Europe (3). Recently issued data from global logistics company Flexport has stated there is a surcharge of roughly £3,927 per 40ft container that is now driving up costs due to those avoiding the Red Sea route (4).

Furthermore, a report from the Shanghai Containerised Freight Index has shown the cost of containers has increased to $2,794 (£2,211) from 29th December – an 86% increase from $1,497 (£1,184) just one week prior (5).

Even insurance premiums are skyrocketing, with a £50 million shipment now resulting in £250,000 of additional cost in premiums should cargo opt to go through the Red Sea and Suez Canal6.

Rising costs of this nature were last seen in 2021 when the Ever Given blocked the Suez Canal for six days. Back then, the impact on the supply chain was huge, causing many delays to food, household goods and more. Now, the supply chain is not only looking at a backlog of commodities such as fruit, meats, seafood, grains, wine, tea, coffee and clothing, but also a rise in costs that will have a big knock-on effect to businesses impacted by the surge in oil prices and containers.


How it will affect your business

At ACI Group, we want to give you access to the most pertinent information in a timely manner. Our customers are at the heart of our business, so we want to ensure you remain as agile as possible during times of crisis. The result of the Red Sea attack and the sharp increase in shipping container costs due to the diversion through the Cape of Good Hope means we must now take action.

Our customer services team has spoken to our suppliers and, as of this weekend, we now know that the situation remains highly volatile, causing transit time to be extended between 10 and 20 days, alongside additional delays when refuelling at African ports, creating more congestion. There is also container imbalance that has led to a lack of equipment ahead of the Lunar New Year peak season.

Since the start of the attacks, we have protected our customers from price increases, but unfortunately this is becoming increasingly difficult to manage. From week commencing 2nd January 2024, prices for our raw materials and food ingredients will increase as a measure to support our business costs when shipping commodities from the US and Asia into Europe.

We are, however, looking at how we can support customers through other means, for example bringing in larger volumes under a single shipment and holding stock locally. We would encourage our customers to contact us if they have any questions or concerns on this matter and our customer service team will be more than happy to help.

Simply call +44 (0) 1628 601 601 or email us at info@acigroup.biz.


References
1, 4. The Guardian, Israel-Gaza war: will the Red Sea crisis lead to a wider Middle East conflict?, January 2024. Accessed: 
https://www.theguardian.com/world/2024/jan/02/israel-gaza-war-risk-wider-conflict-us-iran-houthi-ships-red-sea
2. The Guardian, Iran rejects US and UK calls to end support for Houthi Red Sea attacks, January 2024. Accessed: https://www.theguardian.com/world/2024/jan/01/iran-rejects-us-and-uk-calls-to-end-support-for-houthi-red-sea-attacks


3. iNews, Supermarket price rises imminent as Red Sea shipping crisis to last for months, January 2024. Accessed: https://inews.co.uk/news/supermarket-price-rises-imminent-red-sea-shipping-crisis-2834102
5, 6. The National News, Red Sea shipping crisis will toss UK shoppers into new costs crunch, January 2024. Accessed: https://www.thenationalnews.com/world/uk-news/2024/01/03/red-sea-shipping-crisis-to-cast-uk-shoppers-into-new-costs-crunch/

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