Home Mutual Funds How Is This Suez Canal Slowdown Different From The Last? Businesses Are Better Prepared

How Is This Suez Canal Slowdown Different From The Last? Businesses Are Better Prepared

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Key Takeaways

  • Red Sea shipping disruptions have pushed shipping rates by as much as 400% for some routes, as traffic through the Suez Canal has fallen nearly 64% so far this year.
  • Rerouting traffic around Africa’s Cape of Good Hope can add anywhere from 12 to 20 days to the journey, with transits on that route up 168% for the year.
  • Analysts said businesses are better prepared than in 2021 when the cargo tanker Ever Given blocked the Suez for seven days.
  • While some shippers will see higher costs, a better balance between inventory and customer demand means most retailers won’t need to raise prices, Wells Fargo writes.

The disruption of shipping routes in the Red Sea will create higher shipping costs, but it is unlikely to have the same kind of supply-chain impact as a 2021 cargo ship blockage of the Suez Canal.

Attacks on shipping channels have pressed capacity and diverted traffic around the southern tip of Africa. This has caused spot shipping rates to soar as much as 400% on some routes, according to a report from Wells Fargo.

The Red Sea and Suez Canal see about 12% of global trade traffic, with about 30% of the world’s shipping containers flowing through the waterway. So far in 2024, traffic through the Suez Canal is down by 64% compared with last year.

Many global shipping carriers are sending cargo ships around Africa, adding between 12 to 20 additional days to the journey. Transits around the Cape of Good Hope on the southern tip of Africa were up 168%, according to a report by maritime analyst Drewry.

Businesses More Prepared for Disruption Than in 2021

Global economies adjusted to the supply-chain disruptions of the 2020 global pandemic and the 2021 blockage of the Suez Canal, analysts said. That’s made global shippers more prepared for the issues with the Red Sea this time around.

The current situation in the Red Sea is different than in the Suez Canal blockage in 2021, Wells Fargo wrote, when the cargo ship Ever Given ran aground, halting all traffic through the Suez Canal for seven days.

At the time, Lloyd’s List estimated that $9 billion worth of goods passed through the waterway each day, and another estimate showed that the disruption impacted traffic for at least another 60 days after passages resumed.

“Today, shippers can seek alternative routes or shipping mediums to get the goods where they need to be, which should prevent a more severe disruption from taking hold,” Wells Fargo said. 

That, and a better balance of inventory and consumer demand, mean companies are more equipped to handle the disruptions, said the note from a team led by Wells Fargo Chief Economist Jay H. Bryson

“Businesses look to be in far better shape to weather any potential supply disruption today without having to resort to immediately lifting prices,” the note said.

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