Recent attacks on commercial ships in the Red Sea by the Iranian-backed Houthi militia have forced companies to pay higher insurance rates or reroute goods around Africa, adding costs and delays that could put a dent in companies’ profit margins and, ultimately, push up prices for consumers.
Many executives whose companies ship goods through the Red Sea and Suez Canal have said the impact so far has been limited, in part because of lessons they learned from the more severe, worldwide supply chain disruptions during the worst of the Covid pandemic.
“Moving forward, disruption will hit companies,” said David Simchi-Levi, a professor at the Massachusetts Institute of Technology. “Today it is the Red Sea, tomorrow it will be something else.”
The attacks in the Red Sea, which handles about 12 percent of global trade, have forced companies to make tough decisions. Going through the Red Sea would mean risking an airborne strike, and paying more for insurance. Avoiding the route adds costly delays.
Maritime freight prices have soared since mid-December, more than tripling on the Asia-to-Europe route and more than doubling between Asia and the East Coast of the United States, according to the analytics firm Xeneta.
For now, analysts expect the impact on consumers to remain limited. Shipping makes up a small portion of a product’s total cost, analysts at Goldman Sachs noted. They estimate that the disruptions will add only one-tenth of a percentage point to the global inflation rate this year.