The ongoing Houthis attacks on the Red Sea are inhibiting trade at the Suez Canal, a vital and unavoidable maritime route connecting North Africa, Europe and Asia.
As the disruptions continue, several local sector heads, ranging from construction to food distribution, told the Business Guardian that they are already witnessing some crunch which includes increased shipping costs and delays in goods.
The Suez Canal, which is a vital and unavoidable maritime route connecting North Africa, Europe and Asia, accounts for a substantial 12 per cent of global trade with 30 per cent of container traffic and more than $1 trillion worth of goods including hydrocarbons and bulk commodities as cited according to data from IMF Port-Watch.
It showed in the last six months, these attacks caused the number of tankers and cargo ships transiting through the Suez Canal to drastically plummet by 46 per cent, with a 54 per cent fall in transit trade volumes.
They are now diverting around the Cape of Good Hope at the southern tip of Africa, taking 20 per cent to 30 per cent longer to reach major ports in Europe and the US east coast.
This has increased operational costs for shipping companies as they now are using more fuel, and are forced to pay higher crew costs and shipping insurance premiums.
As it pertains to T&T, certain areas have begun to see some effects.
Gerard Conyers, chairman of the Food Distributors Association, explained that while the bulk of imported foods into T&T comes from North America, those who source goods from places like Taiwan, Thailand and China have been experiencing delays.
Such items include mostly tin and canned products like sardines, tuna, fish and vegetables.
“These delays are about two to three weeks and that varies depending on the shipping lines...the lines are putting up their costs because they have to do a longer route around the Cape,” Conyers said.
He noted that since COVID, shipping rates continue to fluctuate as they “have really never settled.”
Regarding contingency plans, if the situation worsens, Conyers assured that there were presently sufficient stocks.
“There’s a lot of buffer stock. I don’t foresee any shortages. It just means that we just have to plan better and watch your costs because the freight is being affected,” he suggested.
President of the Supermarket Association of T&T (SATT) Rajiv Diptee said while the fallout has been minimal thus far, the situation is being closely monitored.
“Goods could be affected but all orders in transit now are being fulfilled. However, it remains to be seen how orders down the line are affected,” Diptee said, noting that the commodities that come out of that part of the world are typically grains that go into manufacturing as well as a few varieties of soya bean oil.
“It is not something we are overly concerned with right now because everybody is strongly looking at their options meaning, they are looking into alternative options like sourcing from other lines which would be more expensive,” Diptee explained.
If this happens, costs can be passed on to the consumer.
President of the T&T Contractors Association Glenn Mahabirsingh also told the Business Guardian that he was aware of some shipping time delays associated with “some frightening cost fluctuations” however, he added that at this time these changes are not significant like what was experienced during the pandemic.
He warned that this be monitored during the next few weeks, especially as T&T imports key construction materials like steel from Turkey.
Head of the Chaguanas Chamber of Industry and Commerce (CCIC), Baldath Maharaj expressed greater concern saying, “If the delays continue, it will affect sales and some suppliers have already started charging us higher prices to meet their increased shipping costs because of the Red Sea attacks. We are trying to hold off increasing prices but once it continues we can find prices going up.”
The local pharmaceutical sector seemed to be more affected.
One importer of medical equipment from France, Italy and Netherlands of which the raw material is sourced from Asia told the Business Guardian, “There has been significantly delayed due to longer shipping times and long delays in manufacturing of medical equipment. Prices have increased by 30 per cent in some cases. It’s now on a first-come-first-serve basis since shortages will escalate due to the Red Sea crisis.
The Business Guardian also reached out to Shipping Association of T&T president Sonja Voisin.
She said the Houthi attacks on the Red Sea and their impact on the Suez Canal trade indirectly affect T&T, primarily because the country’s imports from Asia largely use the Panama Canal, avoiding direct disruption.
However, she said goods sourced from Europe could face delays and increased costs due to the conflict.
“Shipping carriers have introduced diversion fees of approximately US$ 1,500 for a 20-foot container and US $3,000 for a 40-foot container to navigate around the affected areas, indicating an immediate rise in shipping costs.
“This situation may lead to a scarcity of certain European-sourced goods in T&T and a general increase in the cost of importing these goods. The specific impact on shipping costs and potential goods shortages will depend on T&T’s import patterns and the ongoing situation in the Suez Canal region,” she explained.
Possible knock-off
economic effects
If the Houthis attacks prolong, this will have knock-on effects on the economy, especially increases in prices and shipping costs, warned economist Dr Vaalmikki Arjoon.
He noted that any US and European exporters to the region are already grappling with extended shipping times and elevated costs for raw materials and equipment, complicating timely order fulfilment for several countries already.
“If this continues for several months longer, at some point it may have noticeable effects on local businesses, as they would experience more delays in getting their finished products,” Arjoon said.
For instance, according to Arjoon, some local pharmaceutical companies and importers of medical supplies for the local market from Europe are facing as many as six to eight weeks of delays in receiving deliveries.
“Further, while some suppliers have begun to transfer these costs to us through higher pricing, others for now still cover the extra expenses, though this could change with prolonged Red Sea disruptions, which will in turn drive higher prices locally.
The delays have also prompted some requests for local importers to order and pay several months in advance to secure priority shipment upon availability so that their stocks in the short term are unaffected,” he said.
However, Arjoon noted that securing the necessary foreign exchange for upfront payment is challenging for many local businesses, which may cause some of them to pay higher black-market rates to pay for and secure their items from suppliers.
He said in many countries, businesses are facing higher shipping fees for routes untouched by the Red Sea crisis, due to the general spike in operational expenses for shipping firms and the disruption of worldwide shipping timetables.
Those who haven’t secured long-term negotiated rates are now subjected to more expensive spot rates.
Although these rates have not reached the peaks seen post-lockdown, they remain higher than those in 2023, Arjoon said, adding that locally, some are already seeing a rate hike and should the crisis extend, this hike will be across the board, which would also cut into the profitability of the local private sector.
Higher rates will also be passed onto consumers as higher prices and contribute to a rise in local inflation.
Arjoon noted that there is some optimism, however, as current supply chain challenges are less severe compared to three years ago during the exceptional trade surge when global economies emerged from lockdowns.
“With the severe container shortages at that time, shipping firms then invested in numerous container ships, leading to improved vessel availability today. This increased capacity is enabling carriers to sustain regular services as they travel longer distances. Consequently, despite delays, importers continue to have access to container ships.
“This increased availability has helped avert a prolonged shipping crisis and mitigate the sustained rise in shipping costs,” Arjoon added.
He also noted that shipping bottlenecks at the Panama Canal are exacerbated by drought conditions and infrastructural issues, driving delays in receiving shipments, particularly from Asia.
The lake’s water level has dropped by over eight feet since November last year, prompting strict limits on vessel crossings.
According to IMF PortWatch data, the number of cargo and tanker ships crossing the canal has decreased from 36 to 25 in the last six months, causing significant traffic congestion.
As a result, shippers are missing delivery schedules and paying millions to expedite their shipments.
Additionally, tolls for crossing the canal have increased, adding to shipping companies’ costs.
Some suppliers from Asia have opted to ship orders to the West Coast of the US, then transport them to Miami for local delivery, albeit at a higher cost due to on-land tolls and trucking fees.
These delays at the canal are already hindering some local manufacturers’ access to raw materials and equipment, as well as impeding importers of final products from Asia.
Consequently, Arjoon warned that if prolonged, this could impact sales revenues and market competitiveness due to potential inventory shortages and the inability to fulfil orders promptly.
Voisin also noted that the Panama Canal’s shipping bottlenecks worsened by drought conditions and infrastructure challenges, have directly affected T&T, as this country is reliant on this route for shipments, especially from Asia. Noting that while the latter part of 2023 experienced significant disruptions, the situation has since improved.
However, Voisin said T&T still faces delays of around two weeks and increased costs due to a “Panama Canal congestion fee,” approximately US$ 300 per container.