The manufacturing facilities in Britain have experienced disturbance due to Houthi rebel strikes in the Red Sea, resulting in delays in shipping and increased expenses. The CEO of Adidas has also expressed concerns about the sharp increase in global shipping rates.
The results of a survey have revealed that manufacturers in the UK are facing increasing challenges in their supply chain due to the Red Sea crisis. This has resulted in the redirection of shipments of raw materials, parts, and other products away from the Suez Canal.
According to a monthly survey from S&P Global, the manufacturing industry in the UK continued to decline in early 2024. Output and new orders decreased, resulting in additional job cuts and reductions in purchasing and stocks.
The purchasing managers’ index for January was 47.0, which increased from 46.2 in December but fell short of the initial estimate of 47.3. A reading below 50 signifies contraction, while a reading above indicates expansion.
In response to Israel’s bombing of Gaza, the Houthi rebels based in Yemen, who are allied with Iran, have claimed responsibility for attacking ships. The Israeli retaliation is a response to an attack by Hamas, the governing body in Gaza, on October 7th. The governments of the US and UK have also carried out airstrikes against the Houthi rebels.
According to the survey, certain manufacturers mentioned that they may experience delays of 12 to 18 days in their expected deliveries. This could potentially disrupt their production timelines and contribute to inflation as companies continue to face challenges from low demand both domestically and internationally.
The CEO of Adidas, Bjørn Gulden, stated that profit margins would be impacted by shipping disruptions. He mentioned that continuously increasing freight rates and shipping delays were leading to higher costs and issues with deliveries.
According to Gulden, the current rates are rapidly increasing. Therefore, if you do not have a fixed-term agreement or if you exceed your contracted shipping amount, there will be additional costs incurred.
“At present, there is a approximately a three-week delay that may result in delivery complications, particularly for the European market.”
Major shipping companies, such as Maersk and Hapag-Lloyd, have changed their routes to avoid the Suez Canal and instead travel around the southern tip of Africa. This has resulted in longer journeys and delays in delivering manufacturing materials and items like clothing and shoes from Asia to Europe.
Rob Dobson, the director at S&P Global Market Intelligence, said: “Cost and stock management initiatives are being complicated by the Red Sea crisis. Diverting purchased inputs, especially those sourced from the Asia-Pacific region, around the Cape of Good Hope is raising prices and extending supplier lead times.”
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On average, the Suez canal deals with approximately 12% of worldwide commerce. Approximately 50% of the cargo transported through the canal consists of containerized products. This pathway is also used for transporting oil from the Persian Gulf to Europe and North America. The persistent attacks by Houthi rebels on container ships have resulted in an increase in crude oil prices.
The most recent manufacturing survey from the Institute for Supply Management was released on Thursday in the US. It indicated that supplier delivery times have increased to their highest point in over a year, and the prices paid index has reached a nine-month high.
The manufacturing index showed improvement in January, rising to 49.1 from 47.1 in December. This indicates that the sector’s decline may be slowing down.
Source: theguardian.com
