Part 1: Uncovering a Shipping Crisis
Since October last year, the supply chain community has had its task cut out with the cascading effects of the Red Sea Crisis. Handling the surge in container costs during peak shipment season has kept the companies tiptoeing with their balancing act.
With impromptu attacks on shipping consignments in what is now one of the most volatile passages, we look at how recent events have shaped the world of supply chain operations and their impact on the industries.
As a major route enabling nearly 30% of the world’s container traffic, the Red Sea shipping crisis has churned out some serious numbers going against the annual objectives laid out by the global supply chain leadership.
- The decline in traffic: By March 2024, there was a record decline of 50% in traffic from once most utilized shipping routes. Directly impacting the local economy, SMEs, suppliers, and companies, the port calls have reduced by 6.7% based on last year's baseline.
- Inflation: With the shipping course being rerouted, the longer-distance fairway has seen an increase of 53%, setting the base for more fuel consumption and increased financial requirements. The most alarming is the five-fold surge in pricing for logistics routes from Asia to Europe, which has many companies searching for more economically sustainable options.
- Environmental Impact: Signifying the perfect domino effect, the longer distance has directly led to environmental consequences with higher CO2 emissions. With the substantial increase in journey duration, the GHG (Greenhouse Gas) levels will see an estimated rise of 31% to 66%.
- Delayed Delivery Timelines: Regular attacks by Houthi rebels forced shipping via Africa, resulting in an average increase in delivery timeline by ten days. The delayed delivery has fueled inventory management issues, specifically for U.S. retailers seeing nosedived figures for their inventory levels.
- Commodity Price Increase: With the surge in commodity prices, especially oil and plastic, the estimated global inflation is projected to be 0.07ppt over the next 12 months.
- U.S. Retail: Owing to the disruption, nearly all shipping consignments have opted for a longer transit around the Cape of Good Hope. The move, especially for the U.S. Retail sector, has impacted their service levels in European markets in the majority, with Asia and Europe being the second. A trip that took 35 days to complete has now seen the addition of two more weeks.
- Inventory Lessons & Financial Peace: On the back of the global pandemic, organizations imparted their crucial learnings of keeping safety stock during the ongoing Red Sea crisis. On the one hand, giant retailers from designer fashion industry have accounted for these risks by adjusting their quarterly earnings. They expect a reduction in the gross profit margin of 20 to 25 basis points due to increased costs and shipping uncertainties.
- Automotive Industry Hitting Brakes: The most impacted of all industries was automotive. With the implementation of their “just in time” manufacturing principles, global automotive manufacturers had to halt their production in Europe due to delivery delays. With a known EV company completely suspending its production in Berlin due to logistics hindrances. And all this transpired in their market performance with their stocks performing below last year’s mark.
One of the crucial learnings from the Red Sea crisis is the importance of anticipation and the management of exceptions. A prominent use case involves the usage of satellites to power shipment’s geo-positioning capabilities. The new tech bolsters the day-to-day operations by sidelining limitations of visual aid and radio communication. A USP that has ably kept the organizations two-pace ahead, avoiding possible attacks on their shipments.
To subside any negative impact, analytics-first platforms are becoming the norm. This is an objective that 3SC has been achieving consistently. By putting your data to work with smart algorithms and machine learning abilities, it has pioneered the culture of intelligent tech, solving the problem statements of today and tomorrow. In our next part, we’ll cover how industries set their outlook for the future and how, prominently, new-age supply chain organizations, like 3SC, will play a pivotal part in it.
Disclaimer: We acknowledge the contributions of various sources referenced in this article, whose published content has greatly informed and enriched its content.
