Red Sea Crisis is now a huge problem for Scandinavia and European automotive

The Red Sea Crisis is escalating into a significant problem, with Houthi attacks on container ships increasingly complicating global transportation and driving up costs.

The international military response seems to be falling short, leaving the maritime trade industry grappling with challenges and potential repercussions, starting from automotive industry and car makers that are stopping productions, from Volvo to Tesla, and comes after China Export Ban.

Red Sea Crisis is struggling Mærsk

Mærsk, the Danish cargo transport giant and the world’s second-largest, recently announced the suspension of its cargo ships’ transit through the Red Sea due to Houthi attacks. Managing around one-sixth of global cargo transportation, Mærsk has chosen to reroute its ships circumnavigating Africa, a longer route that adds several thousand kilometers and up to two weeks to the travel time.

This move by Maersk is the latest consequence of a crisis disrupting global maritime transport. The Red Sea route, traversed by approximately 12% of global goods and 30% of containers, is vital for trade between Europe and Asia and between Asia and the eastern coast of America. Shipping companies are now faced with a dilemma: either take the longer route around Africa to avoid risks or expose themselves to potential attacks in the Red Sea, coupled with much higher insurance costs.

Automotive problems

The disruptions in the Red Sea, stemming from the attacks on vessels, are reverberating across the automotive industry.

Volvo Cars has announced a temporary suspension of production at its Belgian plant in Ghent for three days due to the rerouting of ships to avoid the violence in one of the world’s busiest shipping lanes. This rerouting has led to delays in the delivery of crucial components, particularly gearboxes.

Volvo 2024 Lineup

Following this decision, Volvo joins Tesla, which also had to halt production at its factory near Berlin. The affected plant in Ghent produces popular models such as the XC40 and C40, with the addition of the EX30 planned for the coming year.

Despite these disruptions, Volvo remains confident in achieving its global wholesale and production targets, according to a company spokesperson. The broader impact of the Red Sea attacks is felt across the industry, as many companies redirect their ships away from the region, opting for longer routes around southern Africa.

eCar Expo 2023

Problems for Tesla too, which decided to suspend most car production at its factory near Berlin for two weeks. For this suspension, from Jan. 29 to Feb. 11, Tesla cites a lack of components due to considerably longer transportation times, creating disruptions in its supply chains.

Different things fot Stellantis. The italo-french-american carmaker said It is depending on air transportation to manage temporary disruptions in the supply chain, declaring they have “taken appropriate measures to compensate for the temporary extension of some rerouted vessels by using some limited air freight solutions“.

Volkswagen, while closely monitoring the situation, does not anticipate “significant” restrictions to production at this time, emphasizing ongoing coordination with shipping companies to mitigate potential disruptions.

Houthi Attacks Escalate

Houthi rebels carried out a surface naval drone attack last Thursday (11 Jan), near various merchant ships and a US Navy vessel. Although no ships were damaged, this incident is part of a series of attacks that have been ongoing for months in the Bab al Mandeb Strait, intensifying after the outbreak of the Israel-Hamas war.

Houthi targets have included Israeli ships, US and international container vessels, despite the recent US-led naval mission to protect merchant ships and trade routes.

Red Sea Crisis
Image: Data Wrapper

With relatively limited military efforts, the Houthi rebels are significantly challenging the US Navy, highlighting the vulnerability of global trade infrastructure. This comes after previous disruptions such as the Suez Canal blockage, showcasing how global trade relies on a fragile infrastructure that may struggle to support the increased volume of goods moved, which has tripled in the last three decades.

Backed by Iran, the Houthi rebels view the Gaza conflict as a political opportunity to gain legitimacy within the Muslim world and position themselves as significant adversaries to Israel in the region. Despite the international naval mission, the Houthi attacks persist, creating a complex situation for the US military intervention. The global shipping industry is grappling with increased costs, affecting prices that could impact consumers worldwide.

Financial Impact on Shipping Companies

The costs for shipping companies have surged significantly. Rerouting around Africa means increased expenses for fuel and personnel, along with delays of up to two weeks. Opting for the Red Sea route involves not only accepting risks but also facing a higher insurance cost, currently at 0.7% of the ship’s value, up from the usual 0.2%.

Analysts are uncertain about the exact impact and timing of potential price increases, but there is a consensus that the situation may not reach the severity witnessed during the COVID-19 pandemic. However, the crisis coincides with a period of increased maritime trade before the Chinese New Year, leading to concerns about the availability of certain goods. Companies like Ikea are already warning customers about potential product unavailability in the near future.

Notably, Houthi attacks have yet to target oil tankers, a crucial aspect considering that around nine million barrels of oil pass through the Suez Canal daily. Disruptions to fossil fuel transportation could escalate tensions in the Middle East, involving major oil-producing nations like Saudi Arabia, the United Arab Emirates, and Qatar.

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