Shipping colossus Maersk said disruptions in the Red Sea could last into the second half of the year, and warned customers to expect supply chain delays.
Earlier today, data showed food price inflation was easing, but shipping delays could start to reverse that, analysts said.
Following attacks on container ships in the Red Sea heading for the Suez Canal, shipping companies are now taking a longer detour around the Cape of Good Hope at the tip of southern Africa.
"Know your best alternative to entering the North American market and be ready to have mitigations in place," Maersk said in a statement.
"Start quantifying and preparing to mitigate shifts in your supply chain costs," the statement added.
Yesterday, it was found that more than half of UK manufacturers and exporters say they have been hit by delays or rising costs from the Red Sea attacks.
Inflation escalation
Container freight rates on some routes have now stabilised at a higher level, while cost increases have broadened out, macro strategists at Rabobank said.
"If sustained, higher logistics costs could still materially affect inflation in the Eurozone," they said.
Assuming no further geopolitical shocks, a 0.5 percentage points uplift to Europe's HICP inflation over the next 24 months is the analysts 'base case' but they also suggested a range of lower and higher estimates based on scenarios it feels are all quite plausible.
The calculations were based on the surge in goods prices in 2021-22 due to the global disruption of supply chains and the clogging up of distribution over both water and land.
"Higher inventories, supply-chain resilience, and soft demand may dampen any impact, while a stronger pickup in consumer spending and Europe-specific exposures may amplify this shock."
In a status quo scenario, where the Suez Canal remains off limits throughout 2024 and distribution costs elevated until at least early 2025, HICP would rise by between 0.2-1.1% over a two-year horizon, Rabobank calculated, while in a worsening Red Sea situation where the canal is unusable until well into 2025 and distribution costs rise further, this could rise to 0.4-1.8%, "which is quite significant".
For now, naval escorts are the only way a limited number of Western ships can make their way through Suez, which Rabo noted is a high-cost exercise.
While the EU is readying a naval mission of three ships, dubbed Eunavfor Aspides, "this is unlikely to be a gamechanger given the small scale of this mission compared to the density of commercial shipping in the region".
While Maersk and other shippers are bringing more supply on-line to alleviate the strain – Rabobank noted that some polluting vessels are due to be scrapped at the same time ahead of EU ship recycling regulations from late June 2025.
Food price inflation calculations
If a container holds 1,000 items, and the freight rate rises, what would be the impact on inflation?
A rise from $1,500 to $4,500 as has been seen in the market implies each item sees a $3 increase in price to cover this, said Rabobank.
The inflation rate depends on the price of the good, the analysts explained: assuming all the 1,000 items cost $100 item, that would 3%, if they each cost $50, it’s 6%, etc.
"In short, higher prices for transport over water could ultimately feed into higher consumer prices, even though it may be some time before they actually reach households and its extent depends on many other factors.
"Indeed, whether wholesalers and retailers pass on these higher costs to households depends on many factors, such as alternatives (either in transport modality or product), inventory levels, and - more generally- the demand situation."