The crisis in the Red Sea is reflected in the bill

Attacks on commercial ships in the Red Sea began to have an impact on Turkey’s foreign trade. The first to be affected by the developments were the chemical and automotive sub-industry sectors. While the deliveries of intermediate products and raw materials expected to be made in December have been postponed to the end of January, it is stated that this situation may cause disruptions in production. Sectors where business is bad, such as ready-made clothing, do not expect a major problem in the short term, as they were caught in the crisis with stocks.

In connection with the Israel-Hamas war, Iran-backed Houthis in the Red Sea have been attacking ships passing through the Suez Canal since the beginning of December. Even though the target is ships heading to Israel, this creates a risk for all ships using the canal. The majority of ships passing through Suez carry the export cargo of the Far East, especially China, to Europe. Ships coming to Turkey from the Far East also pass through the Red Sea. However, due to attacks in the region, many companies began to circumnavigate the Cape of Good Hope by extending their routes by approximately 40 percent. The extension of routes also rapidly increases container transportation freight rates. Danish container operator Maersk announced that it was preparing to allow its ships to use the Red Sea route after the US-led multinational security initiative became operational in the Red Sea, but stated that they would not hesitate to activate diversion plans once again if deemed necessary. It is said that some other maritime giants, such as MSC, will not return to Suez until security in the region is fully ensured.

“The additional cost burden may fall on the exporter”

According to Aysel Yücel from Ekonomim.com, Adil Pelister, President of Istanbul Chemical Substances and Products Exporters Association (İKMİB), stated that the chaos in the Red Sea has started to affect the sector and said, “According to the information provided by our company representatives, the delivery of the products planned to arrive this month will be at the end of January.” postponed. This delay in the supply of intermediate goods and raw materials needed by our industry may also cause delays in production and export shipments. “These delays may cause a container shortage again,” he said. Stating that on the one hand, deliveries are delayed, on the other hand, the freight rate for products purchased from Far Eastern countries has already increased 3-4 times, Adil Pelister said, “This increase in freight costs may negatively affect our companies on a foreign currency basis, especially since our exporters cannot change prices in contracted sales, the cost burden may remain on our exporters.”

Automotive sub-industry turned to air cargo

Supply problems began in the automotive industry, another sector with good international sales this year. Although the main industry has not yet been affected by the Red Sea crisis, bad news has come from the sub-industry. Albert Saydam, President of the Vehicle Supply Manufacturers Association (TAYSAD), said the following on the subject: “First of all, our costs have increased. Now delivery times have been extended. This situation may lead to a disruption in production. In order to avoid this, many companies turned to airlines without thinking about the cost. But it is not possible to do this constantly.”

Ready-made clothing manufacturers rely on stock

TOBB Ready-made Clothing and Apparel Sector Council President Şeref Fayat stated that the problems experienced in the Red Sea have not yet been reflected in ready-made clothing exports. Fayat said, “However, there may be difficulties in the supply of textile raw materials we import from the Far East. It depends on how long this crisis lasts. Because there is a contraction in most of the companies supplying raw materials. Therefore, the stocks of these companies are sufficient in the short term,” he said.

TİM Deputy Chairman Bayrak: China may step in for military support

Deputy Chairman of the Turkish Exporters Assembly (TİM), Başaran Bayrak, stated that freight rates are on the rise due to the extension of routes and that it is starting to create disruptions in the supply chain. Bayrak stated that they envisaged the problem to be solved in the short term and said, “However, the Cape of Good Hope, which is the alternative to Suez, is a route that requires a lot of time and money. Therefore, I think they will take precautions very quickly and open this line. Since keeping the Suez Canal closed will negatively affect China’s trade, even China may resort to military measures. Moreover, the USA had dispatched its military ships to the region and declared that it had shot down approximately 12 unidentified drones.”

Freight rising fast

The developments started to be reflected in the freight indices. Drewry’s World Container Index, which has witnessed rapid declines since the beginning of the year and moved partially upward due to seasonal effects at the beginning of December, increased by 9 percent in the weekly period starting on December 21, reaching $1,661 per 40ft container. On the basis of routes in the index, the highest increase was seen in the Shanghai-Rotterdam line. Freight rates on this line increased by 16 percent to $1,667 per 40-foot container, while freight rates from Shanghai to Genoa increased by 15 percent to $1,956 per 40-foot container. Drewry expects East-West spot prices to rise in the following weeks due to the Red Sea/Suez situation.

“The shipowner is being opportunistic”

Some industry representatives claim that shipowners are taking opportunism in freight, using the situation in the Red Sea as an excuse. TOBB Plastic, Rubber and Composite Industry Council President Yavuz Eroğlu, one of those who support this view, said, “The number of ships changing route constitutes 2 percent of the total number of ships passing through Suez. “So we think there is speculation again,” he said. Şeref Fayat also said on this subject: “Unfortunately, I observe with regret that the companies, whose transportation prices have fallen significantly after the pandemic and economic recession, have increased their freight rates at an opportunistic level, using the attacks as an excuse.”