Europe’s cargo delays seen short-lived as supply networks adjust – ET Infra

The cargo delays hitting some European companies because of Red Sea ship attacks should be short-lived as container carriers and their customers adjust logistics plans to cope with the longer journeys, executives with one of the world’s biggest port operators said.

“We do not see at the moment that this is a volume problem – it’s a delay problem,” Tiemen Meester, group chief operating officer for ports and terminals with Dubai-based DP World, said in an interview Monday. “There is a temporary dent into this flow, but it will catch up.”

Sailing south of Africa adds 10 to 12 days to the trip between Asia and Europe compared with the Suez Canal shortcut, and many of the vessels that diverted last month have arrived in European ports in recent days. As the mass detour enters its second month, delivery schedules should start to smooth out.

“For just-in-time people, there is an issue because they have to have 10 to 12 days more inventory,” said Beat Simon, DP World’s group chief commercial officer for logistics. “Once they have that, the flow will continue.”

Japanese carmaker Suzuki Motor Corp.’s only European plant, located in Hungary, said Monday it’s suspending production Jan. 15-21 because of supply disruptions linked to the Red Sea. That followed similar idling announcements by Tesla Inc.’s Model Y plant near Berlin and a Volvo Car AB facility in Belgium.

The latest disruptions underscore a major conclusion in a report DP World released on Tuesday — that geopolitical forces are transforming the global economy, rewiring international commerce in costlier ways, and increasing the need for supply chains to diversify and upgrade with better technology.

On Monday, Houthi militants hit a US-owned commercial vessel with an anti-ship ballistic missile, underscoring warnings that one of the most vital arteries for seaborne trade remains too risky for navigation.

Speaking from Davos, Switzerland, where the World Economic Forum is taking place this week, Meester made a distinction between the widespread supply-chain snarls that gripped the world economy during the pandemic and the current strains. “This not the same, because it’s specific trades,” he said.

Volume Rebound
He said the route most affected by the vessel diversions is Asia to northern Europe, though some US-bound ocean freight also transits the Suez Canal and could be delayed.

On Monday, the the European Union’s economy chief said the Red Sea tensions may start to have an impact on energy prices and inflation.

The worst-hit pocket for delays given the distance around Africa is the eastern Mediterranean region at ports such as those in Turkey. There, volumes dropped “very, very quickly” in the early days of the Houthi attacks but are “back now — it has caught up, the two to three weeks of inventory,” Meester said.

Still, importers and exporters face delays and added costs at a time when transportation expenses and geopolitical risks already are high on the list of worries for international companies in 2024, according to a report released Tuesday by DP World.
“A landscape of heightened geopolitical risk is unmistakably shaping the contours of global trade,” the report titled “Trade in Transition” stated. “With escalating trade tensions between the US and China, conflicts such as the war in Ukraine and, more recently, the war in Gaza, businesses are increasingly compelled to reassess their partnerships and supply-chain strategies.”

DP World handles about 10% of global goods trade with operations in some 75 countries. It recently announced plans to boost investments in India and in Tanzania’s Dar es Salaam Port.

The report lays out three hypothetical scenarios to illustrate how trade might be transformed:

In the first, global tariffs rise by 15 percentage points across all industrial goods. China is the biggest loser in this case, seeing its GDP decrease by 4.5%. The US, by contrast, sees a slight increase in GDP of 0.16%, indicating “a degree of resilience in the face of global trade shifts,” the report states.

The second scenario envisions a full-blown high-tech battle where US-China trade in goods like semiconductors and advanced electronics halts. China’s GDP would fall by 1.9%, the US’s would shrink by 0.9% and no country would benefit — even those deemed neutral.

Scenario three involves a complete decoupling between rival geopolitical blocs, and the economic damage would be widespread. China’s GDP would decline by 9.1% and the US would decrease 4.1%. Globally, economic output would drop 4.6%, according to the report.