Red Sea shipping crisis pushes up food commodity and plastic prices, disrupts dairy trade

07 Mar 2024 --- The Red Sea shipping crisis is continuing to hinder trade between Europe and Asia and impact the price and availability of key commodities in the consumer goods sector, including wheat and plastic, according to research by the British Chambers of Commerce.

Following the outbreak of the Israel-Hamas war last year, the Houthi group in Yemen has been attacking shipping vessels in the Red Sea, causing upheaval in one of the world’s most important trading routes.

Shipping companies have been forced to divert supplies away from the region and reroute around Africa, resulting in delays of up to four weeks as well as increased transportation costs.

According to Ritesh Kumar, director of procurement and supply chain intelligence at The Smart Cube, the crisis is already causing negative repercussions across global supply chains, with the situation likely to worsen in the weeks ahead.

“Businesses ought to prepare themselves for longer product delivery and replenishment cycles,” he tells Food Ingredients First.

“Wheat and sunflower oil prices are starting to increase. What’s more, the crisis is disrupting the delivery of European dairy products to Southeast Asia, leading to both delays and higher freight costs, causing a dip in the supply of dairy goods,” he says.Plastic prices are fluctuating amid the Red Sea crisis due to their inability to absorb freight hikes.

“Also, plastics are one of the key commodities that are most severely impacted due to their inability to absorb freight hikes, thereby fluctuating prices. This issue has resulted in price rises for various biopharma categories such as single-use systems and packaging.”

According to the latest statistics from the FAO Food Price Index, vegetable oil prices increased marginally in January 2024, by 0.1% from December 2023. 

UK export concerns
The British Chambers of Commerce’s research reveals that 55% of UK exporters and 53% of manufacturers and business-to-consumer firms, such as retailers, have faced disruption due to the ongoing conflict.

The main impacts cited by businesses are increased costs and delays.

“There has been spare capacity in the shipping freight industry to respond to the difficulties, which has bought us some time. And recent Office for National Statistics data also indicates the impact has yet to filter through to the UK economy, with inflation holding steady in January,” says William Bain, head of trade policy at the British Chambers of Commerce.

“But our research suggests that the longer the current situation persists, the more likely it is that the cost pressures will start to build.”

The British Chambers of Commerce is calling for the establishment of an Exports Council to hone the UK’s trade strategy and review the effectiveness of government funding for export support.

“Overseas trade is vital to growing our economy,” adds Bain.Ritesh Kumar, director of procurement and supply chain intelligence at The Smart Cube: Firms should prepare for longer  delivery cycles.

Crisis management
Companies can adopt several measures based on their size and scale to navigate the challenges posed by the Red Sea crisis, says Kumar.

“These include exploring nearshore and reshore vendors, collaborating with freight forwarders and seeking alternative supply routes, such as air freight for overseas shipments and rail freight for land shipments.”

“The primary distinction lies in the nature of their products: food businesses handle perishable items with limited shelf life, making swift transit crucial, while plastic packaging companies face less urgency in this regard.”

However, ocean freight faces risks over the next two to three months beyond the Red Sea crisis.

“China-Taiwan tensions and Suez Canal pressures contribute further to the inflationary sentiments,” continues Kumar.

“Consumer packaged goods companies are proactively looking to mitigate these risks as ocean shipments account for a significant share of their spending. Adaptability and close monitoring are critical in the current environment.”

Electronic components
Europe is a key importer of electronic components from Asia. The crisis has reportedly led to approximately two weeks being added to electronic consignments from Asia-Pacific to Europe as shipments are rerouted via the Cape of Good Hope.

“As such, several consumer goods, including PC shipments to Europe, are being adversely impacted by the ongoing Red Sea attacks, resulting in increases to lead times and costs,” says Kumar.

“This is also an issue for the life sciences sector, whereby electronic parts are used in the manufacturing of medical devices.”

By Joshua Poole