More than half of UK retailers and exporters have been affected by the disruption to Red Sea trade from Houthi rebel attacks on cargo ships, research by a leading business lobby group suggests.
The price of shipping a container from Asia to Europe has gone up by as much as 300% for some businesses, while logistical delays have added up to three to four weeks to delivery times, according to the survey by the British Chambers of Commerce (BCC).
The delays are creating knock-on effects, such as cashflow difficulties and component shortages on production lines, according to participants in the BCC poll of more than 1,000 companies, most of which were small- and medium-sized businesses.
The Iran-backed Houthis who control much of north-western Yemen have been attacking merchant vessels in the region since November in what they say is a show of support for Palestinians in the war between Israel and Hamas in Gaza.
The US and the UK have responded with their own strikes to protect international shipping on the route, carrying out the latest air assaults against 18 Houthi targets in Yemen this weekend, including weapons storage facilities, and the disruption shows no sign of ending.
William Bain, the head of trade policy at the lobby group, urged the government to look at providing support for exporters in next week’s budget amid weak global demand and higher costs.
“There has been spare capacity in the shipping freight industry to respond to the difficulties, which has bought us some time. And recent [government] data also indicates the impact has yet to filter through to the UK economy, with inflation holding steady in January,” Bain said.
“But our research suggests that the longer the current situation persists, the more likely it is that the cost pressures will start to build.”
Bain said it was “a difficult time for firms” as the recent introduction of the government’s new post-Brexit customs checks and procedures for imports from Europe had also been “adding to costs and delays”.
“The UK economy saw a drop in its total goods exports for 2023 and, with global demand weak, there is a need for the government to look at providing support in the March budget,” he said.
On average, the cost of shipping goods from China to Europe has more than doubled since December, as shipments must now travel around Africa rather than through the Suez canal – a route that takes about two weeks longer.
The supply chain problems are expected to be exacerbated next month as China begins shipping again in earnest after its annual pause for the two weeks of lunar new year celebrations – which concluded on Saturday with the Lantern Festival.
The current logjam has seen an increase in the use of air freight, with spot rates from China to Europe up 8% in early February and up 14% from China to the US, according to delivery aggregator ParcelHero.
David Jinks, the head of consumer research for ParcelHero, said: “Initially, there was a scramble for aviation services as businesses rushed to get products out before the [lunar new year] festivities began.
“Now the continuing demand for air freight on this route is because many ships are berthed for the duration and containers are stuck firmly in Chinese ports until manufacturing ramps up enough to restore full services. Air freight enables those companies manufacturing and operating in Asia to leapfrog the Chinese bottleneck.”
The credit ratings agency Moody’s warned earlier this month that, if prices remained high, retailers would see a “material impact on profitability by the end of 2024”.
The problems in the Middle East come as shipments via the Panama canal are also under stress, as low rainfall has forced it to restrict traffic using its locks.
Last year, more than a fifth (22%) of global seaborne containers passed through the Suez canal, carrying goods including natural gas, oil, cars, raw materials and many manufactured products and industry components, according to a recent report by the United Nations Conference on Trade and Development (Unctad).
By the first half of this month, 586 container vessels had been rerouted away from the canal while container tonnage through the waterway fell by 82%.
