Will Red Sea trigger a new supply chain crisis?

In the near term, the global container shipping industry will likely absorb the shock to capacity caused by attacks on vessels in the Red Sea, because demand is generally soft in January and February. However, should the attacks persist into March and April, when global trade experiences a seasonal rebound, capacity constraints could trigger a supply-chain crisis like the one that occurred in 2021-22.

That crisis happened when container shipping proved unable to support the rebound of international trade starting in late 2020. COVID-19-related closures and staff shortages at ports kept ships waiting for days or weeks to unload their cargo, with the result that fewer vessels were available to ship goods. Competition for slots on ships sent on-the-spot shipping rates soaring; the increase was eightfold on routes between Asia and Europe or North America compared with 2019.

The source of supply-chain stress is different today, but the outcome could be similar. Major freight carriers, including Maersk and Hapag-Lloyd, have suspended operations through the Suez Canal to avoid the Red Sea and are rerouting vessels around the Cape of Good Hope, adding 3,000 to 3,500 nautical miles (5,500 to 6,500 kilometers) and seven to 10 days to a typical trip between Europe and Asia. The extra distance could absorb from 700,000 to 1.9 million standard containers (twenty-foot equivalent units, or TEUs) of shipping capacity, depending on the estimate.