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12° Nicosia,
21 April, 2024
 
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Houthi strikes send prices soaring in global trade

Red Sea turbulence hits commercial shipping

Maria Eracleous

Maria Eracleous

In recent weeks, the developments in the Red Sea, with the Houthi attacks on commercial ships and their impact on global trade, have dominated the discussions of suppliers with their partners.

Already, from the information they share, it seems that the new increases in the goods arriving from the Asian markets are largely inevitable. A large number of shipping companies are changing routes, avoiding the Suez and doubling the transit time of goods. This entails additional needs for transport fuels, and therefore higher costs.

Within a month, the freight rates for containers have doubled. Meanwhile, after the escalation of the conflict in the Red Sea and the involvement of the US and Britain, the prices of Brent crude oil recorded an increase of 2.3% and the American crude oil 2.5%. At the level of the Cypriot market, there is turmoil, with concerns being officially expressed by professionals in the retail trade for the skyrocketing cost of containers and by the construction sector for increases in building materials.

However, it is emphasized that, the increases that will occur in products and services, will depend on the duration of the new crisis with the possibility of a prolonged critical situation in maritime transport ringing the bell for suppliers, traders and consumers. The "K" spoke with executives of companies that are giants in the retail food sector in Cyprus, such as KEAN, Laiko Cosmos and Coca Cola, who explained how and to what extent they are affected by the new crisis and its impact on the supply chain.

Clothing and footwear

The developments affect directly the imports and exports to Asian markets such as China, Singapore, India, Japan, etc., with China being one of the largest markets for importing products to Cyprus. From January to October 2023, imports from the Chinese market amounted to around 600 million euros, from India to 91 million euros and from Japan to 255 million euros according to the latest edition of the Statistical Service.

From these markets - and more broadly from the Asian ones - Cyprus imports clothing, footwear, furniture, electrical and electronic appliances and raw materials for the construction sector. What is clarified by Marios Antoniou, secretary general of the Pancyprian Association of Retail Trade, is that in the first stage the situation in the Red Sea affects to a lesser extent the essentials and food, and therefore the supermarket basket is not expected to be significantly affected.

At least for now. A clearer picture will emerge with the calculation of the cost of materials (which inevitably affects the operating cost of production, and therefore the final products) and the increase in the cost of oil within the next three weeks. These days, retailers are doing their calculations, in an effort to clarify the increases that arise, and what will end up to the consumer. On the other hand, the longer transit time, it is clear that it will lead, perhaps inevitably, to some shortages of products, a development that also disrupts the market.

As Mr. Antoniou explains, with the aim of securing their stock, businesses and suppliers may try to place larger orders. To do this, liquidity is needed (as orders are prepaid), or borrowing from the bank, something that makes the possibilities of a business difficult. If there are not enough funds for the orders, then the stocks in the market are also scarce. 

Freight rates skyrocket

The situation is fluid as described by the CEO of Laiko Cosmos Trading Ltd, Vasilis Petridis, explaining that the suppliers of products from the Far East warn that the next loads may be double or even triple the current freight rates, which, for the first time after the pandemic period, returned to pre-2020 levels.

Already the price of the loads from the Far East is double with an upward trend, compared to the price that prevailed in December. In the case of Laiko Cosmos, the first effects are expected to be recorded in the ready-made products originating from Singapore, such as coffees, or in frozen products, as well as materials for Asian dishes in catering and supermarket shelves.

Asked to estimate the level of the increases, Mr. Petridis said that no decisions have been taken, since the company has stocks that cover the demand for some time. However, the charges for the new orders may include the increased costs in the freight rates.

On his part, the country manager of Coca Cola Vangelis Moschos, explained that the upheavals in the maritime transport of goods are a development that comes to be added to a burdened chain of negative developments.

Certainly, he says, the fact that many shipping companies have stopped using the Suez Canal and are making the circle of Africa, affects the time and cost of transport for the products. An indirect effect is the increase in the cost of oil, which will inevitably affect more generally the operating cost of a business. However, as he explains, the company does not have commercial relations and does not import raw materials from China or the Far East but from the Greek and European market.

Therefore, in the first stage it is not affected. What has affected the company, as he describes, is the new data that are created in tourism due to the war in Israel, and the impact on consumption in the Cypriot market.

Exports are affected

Of course, beyond imports, the cycle of business operations can also be affected at the level of exports. One such example is KEAN. The director of the company Chris Markides explained to "K" that 60% of the company's exports are channeled to the Asian markets. These are products such as juices, which have a limited shelf life.

Therefore, a delay of 1-2 months in their receipt, reduces even more the useful life of the product. As a result, thoughts are expressed by customers of the company to change supplier, with whatever that entails for the level of the company's exports. In the effects of the problem that concern the Cypriot market, he noted that the situation in transport is at the center of the discussions with the customers of the company with the indications leading to the conclusion that it is a new blow, the effects of which will soon become visible in the supply chain. Already, companies are looking for new partners in markets that are not affected, in order to ensure the uninterrupted supply of goods.

On the other hand, the concern arises for the management of the upcoming increases and the possibility to roll over to the final product, or to be absorbed by the company. In the case of KEAN, what is clarified is the intention of the company to maintain the prices of the products as they are.

New increases in construction

Increases are also expected in the construction cost, with the president of the Federation of Building Contractors Stelios Gabriel describing that while some corrections were expected in materials such as steel, metal constructions and iron, the geopolitical changes bring an increase in the cost of transporting materials from countries such as China and India and by extension in the cost of the materials themselves.

This entails a new rise in the construction cost, which has already recorded an increase of the order of 20% within three years. An increase is also expected in household equipment materials, which we import from countries such as Japan, India and Malaysia. Of course, apart from the increase in the cost, delays in the receipt of materials are potentially translated into new completion schedules for residential projects.

[This article was translated from its Greek original]

TAGS
Cyprus  |  Houthi  |  world  |  RedSea  |  shipping  |  economy

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