European industry blocked by ship attacks

Since the start of the war between Israel and Hamas, in support of the Palestinians in Gaza, the Houthi rebels have increased attacks against Western ships off the coast of Yemen. In recent days, tension has escalated and led to the closure of factories in Europe.

Monday January 15, off the coast of Yemen, a new American ship was hit by a missile. The repercussions of these attacks in the Red Sea are very concrete. In Europe, this translates into idle factories. This is the case, for example, of the Tesla car factory in Germany which will suspend production due to shortages of electronic components manufactured in Asia. Ditto for Volvo which shuts down a factory in Belgium for several days.

To manufacture their electric cars, manufacturers are very dependent on parts imported from China and Taiwan. These parts are transported on large cargo ships, container ships. They are therefore the target of the Houthis in Yemen and these attacks cause significant delivery delays. To avoid threats, ships take other routes. They now avoid the Suez Canal, which extends delivery times, 10 to 20 days more, which disrupts most European ports, such as Rotterdam, Antwerp, Genoa and Marseille.

Automobile manufacturing is affected, but also the furniture industry. Ikea, for example, has already warned its customers of delays, items will be missing from the shelves. In fact, most sectors are exposed to these problems, as 30% of container ship trade goes through the Red Sea. The dependence of our value chains on Asia was highlighted during Covid and, in fact, it has not progressed much.

A risk of price spikes

Bypassing the Suez Canal, to avoid gunfire, ships pass through the Cape of Good Hope in the far south of Africa, which is longer and therefore more expensive. What’s more, insurance companies are reluctant, today, to insure ships which have become real targets and they are increasing their rates. In fact, shipping companies like CMA-CGM or Maersk pass on these increases. CMA-CGM has already announced that it will double the price of its container with the risk that this increase will end up being found, at the end of the chain, on the labels for consumers.

One of the European Union’s main fears is that energy prices will rise again. The European Commissioner for the Economy, Paolo Gentiloni, spoke about it on Monday January 15. In the euro zone, inflation is likely to persist even though it was thought that the rise in prices would subside. To try to reestablish international law and avoid these economic blockages, the Americans and the British intervened militarily against the Houthis in Yemen, despite the risk of a geopolitical conflagration.