Red Sea Crisis: Foreign Supply Chain Company’s Perspective from China

Since November, the Houthis in Yemen have launched waves of drone and missile attacks on ships passing through the Red Sea. The results on container shipping through the Red Sea have been dramatic, falling by nearly one-third this year, with most now diverting around Africa, according to the International Monetary Fund.

If your operations involve shipping goods from China or Asia, you’ve likely been affected. Costs and delays are the most noticeable consequences. “In general, ocean freight rates from the Far East to Europe have increased by approximately 250-300% from December,” said Steven Jou, project manager at Charles Kendall Freight Ltd.

Yet, there are other critical factors to consider. From our perspective in China, here are the top considerations for companies in Europe or the U.K. importing from China and Asia.

Plan Shipping Weeks in Advance

Most companies’ goods are now being rerouted around the Cape of Good Hope, adding approximately 10 days to transit times. However, the additional wait for containers to arrive is not the only issue.

The most significant challenge we’re seeing is a container shortage. Ships heading back to China need an extra 10 days too, causing a shortage at Chinese ports and driving up costs.

For businesses with production in China or Asia, waiting to book shipping until your goods are ready doesn’t work anymore. What used to take days to ship now takes weeks. This means logistics and shipping need more planning and coordination than ever.

The role of a demand planner, especially one based in China, is particularly valuable right now. Companies must now anticipate weeks in advance when their goods will be ready, coordinating with upstream suppliers to ensure goods are prepared for pre-booked shipments well in advance.

Suggestion: Pre-book your containers and, if possible, engage a demand planner based in China.

Alternatives to the Cape of Good Hope

Companies are finding new ways to ship goods, like avoiding the Red Sea and instead offloading in Dubai to air freight to Europe. While more expensive, it’s certainly faster. However, the process is more complex than merely looking at a map and choosing a new route. Choosing a new route, especially through different countries or using air freight, means you have to really understand local rules and paperwork.

Take the UAE, for instance. Its location near the Red Sea makes it a popular spot for companies to switch from sea to air freight for Europe-bound goods. But doing this in Dubai means you’ve got extra forms to fill out and strict rules to follow, especially for electronics or anything with batteries. Air shipping has tight regulations that require prior approval.

So, changing your shipping route isn’t just about the direction your goods take. It’s about navigating through a sea of regulations and ensuring all your paperwork is in order. This background work is key to keeping your shipping smooth and within the law.

Rail

For some goods and industries, the China-Europe freight train services might come in handy.

“Rail services might be a good alternative for certain clients, especially for exporters in Western China who are located close to major rail stations like Chongqing, Xi’an, etc., and importers in Eastern Europe, such as Poland, Hungary, the Czech Republic, and CIS countries,” suggested Jou.

However, most suppliers are based on China’s east coast, so taking the longer route via the Cape of Good Hope is still going to come out top for most.

Suggestion: If your supply chain is rooted in Western China, rail freight could be a smart move. While air freight might work for some, sea transport remains the most effective option for the majority.

Chinese Vessels

The Houthis have announced that Chinese and Russian vessels will have safe passage through the Red Sea, making Chinese shipping companies some of the few active in the area.

“As far as I know, some Chinese-flagged ships are still transiting the Red Sea under the protection of the Chinese Navy. However, this only applies to some ships and cannot be generalized for all,” said Jou.

As such, insurers are still covering Chinese vessels, though at increased rates. Yet, given the unpredictability of the situation and the risk of misidentification, it’s unclear if this situation will continue.

For example, a Marshall Islands-flagged tanker carrying Russian oil was hit by a Houthi missile and caught fire on Jan. 27. As such, tankers carrying Russian fuel are now avoiding the Red Sea.

Suggestion: Despite Chinese shippers operating in the Red Sea under naval protection, the volatile security environment introduces substantial risks and uncertainties.

Is It Time to Consider Nearshoring?

Disruptions highlight the growing trend among companies to diversify or nearshore their supply chains as a long-term resilience strategy. However, even for those who have diversified away from China, the impact of such situations is inevitable.

For instance, shifting to Southeast Asia doesn’t solve the current situation. Goods destined for Europe still have to navigate across Eurasia, presenting the same logistical challenges to those faced when shipping directly from China.

Shifting to suppliers in countries like Turkey offer alternatives. However, it’s crucial to remember that many raw materials still originate from or are processed in East Asia. And Turkey’s main trade route with East Asia runs through the Red Sea.

Suggestion: While nearshoring and diversifying supply chains offer potential benefits for resilience, they do not eliminate vulnerability in this particular situation.

Need Help?

For guidance on navigating supply chain complexities in China and Asia, consider reaching out to us.