Industry Witnessing Red Sea Supply Chain Effects

WEDNESDAY, FEBRUARY 7, 2024


In what has been dubbed the largest disruption to global trade since the COVID-19 pandemic, the supply chain is showing signs of strain following attacks on commercial shipping vessels in the Red Sea.

Now, much like during the pandemic, the paint and coatings industry could once again face material price increases, delays in shipping and shortages on materials.

What’s Happening

Over the past several months, there have been several attacks on commercial shipping vessels by Iran-backed militants, resulting in the closure of one of the world’s main trade routes for container ships.

According to CNN, the Houthi militants claim that they are taking revenge for Israel’s war against Hamas in Gaza. The attacks have provoked military response from the United States and the United Kingdom.

This has caused the average number of tankers and cargo ships moving through the Suez Canal to fall about 40% from the start of 2023, Bloomberg found. The diverted trips can also take about 25% longer for transportation.

To potentially pad some these issues, some companies have opted to take alternative routes of transportation such as air freight, are adding on emergency surcharges or rerouting their ships entirely. However, even after the boats reach the Suez Canal is proving difficult, as traffic is restricted through the Panama Canal due to a severe drought.

In a report released last month, the World Bank warned that the disruption to key shipping routes was “eroding slack in supply networks and increasing the likelihood of inflationary bottlenecks.”

Several of the biggest container shipping companies, including Maersk, MSC, Hapag-Lloyd, CMA CGM, ZIM and ONE, are largely or completely avoiding the Red Sea because of the threat to crew, cargo and vessels.

Global trade fell 1.3% from November to December, Germany’s Kiel Institute for the World Economy said Thursday, citing “consequences of the attacks on cargo ships in the Red Sea.”

“All-in prices” of $5,000 to $8,000 per container for major trade routes originating in Asia are 2.5 to 4 times the “normal levels” for this time of year, according to estimates by Judah Levine, head of research at logistics firm Freightos.

However, that is still 45% to 75% below their “pandemic peak” in late 2021, Levine noted. 

And its effects are not just being felt in the paint and chemical industry—the closures have paused most of production for Tesla in Germany, retailers are warning of shipment delays, and energy and raw material prices are spiking.

“It is yet another disruption in the supply chain,” Gene Seroka, executive director of the Port of Los Angeles, told CNN. “This is not going away in three or four weeks.”

Industry Reactions

Material Handling and Logistics anticipates that the chemical, paint and lubricant sectors, as well as the manufacturing industry, could potentially see more of an impact from the Red Sea crisis. With delays in output of production from Europe alone, supplying to the Americas like many coatings businesses do, suggest negative implications for the manufacturer and the customer.

At the beginning of this month, coatings and pigments manufacturer Sun Chemical revealed it will be proactively implementing selected freight surcharges impacted by the Red Sea crisis globally. The company explains that it is taking “necessary steps” to secure raw materials and minimize transportation delays.

“Sun Chemical is committed to mitigating rising costs whenever possible, however, the rapid escalation in freight cost pressures has made the introduction of some freight surcharges unavoidable,” wrote the company in its announcement.

“Sun Chemical will communicate specific adjustments directly with its customers, underscoring its dedication to transparency and collaboration in navigating the challenges posed by the Red Sea crisis.”

Supplier of inks and coatings for the print and packaging industries Flint Group released an update, noting that their company has been impacted by the global supply chain, transit times and costs

“Our global Procurement and Customer Service teams are working diligently to mitigate the impact of the current sea freight disruption by proactively tracking incoming materials, reviewing stock levels and adjusting the mode of transportation to recover delays,” explained Arno de Groot, Vice President, Procurement.

“Our top priority is to ensure customers have the inks and coatings required to run their sites smoothly. We will update our customers as the situation evolves and continue to do everything we can to minimize any adverse impacts.”

The group also recommends that customers proactively plan stock levels in anticipation of increased lead times. 

Alternatively, independent chemical manufacturing company Thomas Swan recently highlighted the critical importance of its supply chains, emphasizing its in-house production and European and U.S. supply chains.

According to the company, it exports approximately 70% of its products to over 80 countries.

“Embracing a purchase-from-stock policy, flexible production assets, short lead times, and Ecovadis Gold accreditation, we are well-equipped to dispatch products swiftly and efficiently mitigating any potential disruptions,” wrote Thomas Swan.

“Our commitment is to contribute to a vibrant, viable, and competitive specialty chemical industry—one that stands by its partners in both prosperous and challenging times.

“We would be happy to discuss how Thomas Swan can be of assistance, whether by shortening your supply chains, expanding your approved supplier list, or optimizing your working capital as a result of reduced lead times.”

   

Tagged categories: Asia Pacific; Business conditions; Coating Materials - Commercial; Coatings; Coatings raw materials manufacturers; Construction chemicals; Economy; EMEA (Europe, Middle East and Africa); Good Technical Practice; Latin America; North America; Paint; Program/Project Management; Raw materials; Ships and vessels; Supply and demand; Z-Continents

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