Red Sea shipping crisis stokes further inflation fears after Houthi attack

Freight rates have been stabilising but the missile attack against a Belize-flagged ship could further disrupt global trade and hurt consumers

Central banks could delay easing interest rates due to inflationary concerns and this would in turn dampen the business outlook

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Houthi supporters attend a rally in Sanaa against the US-led airstrikes on Yemen and in support of the Palestinians in the Gaza Strip on February 9. Photo: AP

Published: 7:30pm, 21 Feb 2024Updated: 8:23pm, 21 Feb 2024

A missile attack by Houthi rebels on a Belize-flagged ship has dashed hopes for an end to the shipping logjam between Asia and Europe just as freight rates were stabilising, with retail consumers expected to bear higher costs.

The disruption to global trade is starting to percolate to retailers as spare part inventories sourced by Western manufacturers from Asia have started thinning. This has led to inflation worries resurfacing and clouded hopes that central banks would cut interest rates soon.

Ninety per cent of ships are avoiding the Red Sea due to the Houthis’ sustained campaign of attacks from Yemen on vessels in the waters. This is causing ships to take two weeks longer than usual to reach their destinations, which in turn is causing a shortage of critical parts for manufacturers, said Blair Robbins, partner at Eisner Advisory Group LLC, a New York-based consultancy and accounting firm.

Those disruptions have caused carmakers Tesla and Volvo to suspend some production in Europe due to a shortage of components. Without a resolution to the crisis in sight, it is now likely to affect manufacturers in other sectors as well, executives say.

If manufacturers are unable to get the key components they need, then “they are going to cancel orders for all the other components that they don’t need because they’re not making the product,” he said.

Manufacturers are facing a double whammy as it is becoming too expensive to depend on inventories to tide over the supply crisis due to high interest rates, Robbins said. Since March 2022, the US interest rate has risen by one of its steepest levels in years.

Red Sea shipping crisis stokes further inflation fears after Houthi attack

Freight rates have been stabilising but the missile attack against a Belize-flagged ship could further disrupt global trade and hurt consumers Central banks could delay easing interest rates due to inflationary concerns and this would in turn dampen the business outlook

Freight rates have been stabilising but the missile attack against a Belize-flagged ship could further disrupt global trade and hurt consumers

Central banks could delay easing interest rates due to inflationary concerns and this would in turn dampen the business outlook