This text is taken from Courrier de l’ économique. Click here to subscribe.
Just Friday, Yemeni Houthi rebels attacked an American merchant ship traveling in the gulf at the southern entrance to the Red Sea. For about two months now, such attacks have been taking place regularly as a sign of solidarity with the Palestinians in this important sector for global maritime traffic.
These events, which are taking place on the other side of the planet, have consequences here. Indeed, the Manufacturers and Exporters of Quebec (MEQ) say that some of their members are already affected by cost increases and delays.
How to explain this? About 30% of global container traffic usually passes through the Suez Canal, located north of the Red Sea, reports Claude Comtois, researcher at the Interuniversity Center for Research on Business Networks, Logistics and Transport. Security fears have pushed a significant proportion of them to change their route. However, the alternative option for reaching Asia from Europe is to circumnavigate Africa via the Cape of Good Hope. It’s a detour of 7 to 10 days, says Mr. Comtois.
“If it takes you 10 days more, it could cost you a quarter of a million dollars,” says the researcher. Beyond the costs of chartering a ship, if you have reserved your place at a terminal in a port, but you are ten days late, that port or terminal may no longer have the window to to accommodate you. So, you have to wait, there are still delays, and it costs a fortune. We must also take into account the salary of the staff…”
Other ships continue to pass through the Red Sea, but their insurance costs have exploded, Comtois adds.
According to the Port of Montreal, delays and costs particularly affect the thousands of businesses that trade with Asian markets. “Although our operations are not immediately affected, some of the cargo considered urgent and destined for these markets may now have to turn to the West Coast facilities,” said the director of public affairs of Montreal Port Authority, Julien Baudry. Going through British Columbia when leaving Quebec also adds costs for businesses.
In this context, the average price of a 40-foot container increased by 180% between last week and October, reaching US$3,777, according to the Drewry World Container Index (WCI). We are still far from the peak reached during the pandemic. In September 2021, the average price of such a container had exceeded the $10,000 mark. However, consumers could feel the effects, because companies might have to pass on part of the bill to them.
Long-term fears
For the moment, these effects are still minor, estimates Véronique Proulx, president and CEO of MEQ. However, she is concerned about their extent if the problem persists. However, despite the United States’ response, the situation does not seem any closer to being resolved. And the Houthis vow to continue their attacks until a ceasefire is achieved in Gaza…
“In Europe, we have seen some companies in the automotive sector close production lines, because this conflict is leading to a shortage of essential components. We can expect that there will be repercussions so far, because the supply chains are closely linked,” said Ms.me Proulx.
Manufacturers still remember the supply chain disruptions that occurred during the COVID-19 pandemic. MEQ had estimated the losses generated at more than $8 billion, given that they had slowed down the production capacity of companies.
“It shows how complicated it is today for companies to do business internationally. Geopolitical conflicts and the climate crisis are elements over which we have no control, which were very little present twenty years ago when we exported,” believes Mme Proulx.
This is why several companies are trying to bring their production and suppliers back to North America. But this is not always easy to do in the short term, especially when Asian countries dominate the manufacturing of strategic products, such as microchips.
This text is taken from Courrier de l’ économique.