Terror attacks on commercial vessels in the Red Sea have spiked shipping costs by more than 600% since the outbreak of the Israel-Hamas conflict — and could upend the Federal Reserve’s efforts to bring down inflation in the US.
Oil prices briefly jumped above $80 a barrel Friday before settling at $78.29 a barrel as the world’s shipping giants divert their container-packed ships away from the Suez Canal and take the long way past the Cape of Good Hope.
Going around southern Africa adds $1 million in fuel costs and about 10 days to the journey — and risks creating the type of supply chain chaos that snarled the US economy after the pandemic.
“This is a world in which we are fragile to begin with on the supply side, and then you get this additional shock,” noted economist Mohamed El-Erian said Friday in an interview on Bloomberg Television.
Diverting the ships out of the line of fire from Houthi rebels is having a “global contagion” — with the cost of shipping a 40-foot container between North Asia and Europe soaring to $6,000, a 600% spike since October, according to CNBC, which cited S&P Global Commodity Insights.
The US is being impacted too: From North Asia to the East Coast, prices have jumped 137%, to $5,100, S&P Global reported, while rates from North Asia to the West Coast have surged 131%, to $3,700.
“The longer this crisis goes on, the more disruption it will cause to ocean freight shipping across the globe and costs will continue to rise,” Peter Sand, chief analyst at freight platform Xeneta, said Friday.
Major importers like Tesla, Geely-owned Volvo Car and Ikea already have reported product shortages or warned of late-arriving goods.
Target also announced that products shipped from Pakistan and India will be impacted.
The renewed price pressures could mean Americans will continue to be squeezed by high borrowing costs despite investors banking on the Fed to start cutting rates — which currently sit at a 22-year high — as early as March.
Lingering inflation also could pose a significant hurdle to President Joe Biden’s reelection efforts.
On Thursday, the latest Consumer Price Index — which tracks changes in the costs of everyday goods and services — showed inflation rose a hotter-than-expected 3.4% in December.
That figure remains above the Fed’s 2% target rate.
A note from JPMorgan to it clients before the release of the CPI warned the fight against inflation could stall in the coming months if higher shipping costs jack up the price of goods.
“Renewed increases in global shipping costs may actually add to consumer price inflation over the next several months, should these increases ultimately pass through into higher final goods prices,” the analyst wrote, according to CNBC.
“Such an outcome would reinforce our expectation for progress on reducing global core CPI inflation to stall this year.”
On Friday, Tesla said it’s halting production of electric vehicles at its biggest factory in Berlin, Germany, for two weeks — from Jan. 29 to Feb. 12 — because of the conflict in the Red Sea.
“The considerably longer transportation times are creating a gap in the supply chains. Due to a lack of components, we are therefore forced to suspend vehicle production in the Gigafactory Berlin-Brandenburg,” a spokesperson for the Elon Musk-run company told The Wall Street Journal.
Tesla builds the Model Y at its German factory.
Swedish discount-furniture giant Ikea already warned last month that it’s experiencing supply-chain delays because of diversions from the Red Sea.
A spokesperson told The Post at the time that it was “evaluating other supply options to secure the availability of our products,” but would prioritize the safety of staff working in its supply chain.
Other European retailers are reportedly delaying their marketing campaigns for goods impacted by the crisis in the waterway until stocks were secured, according to Reuters.
US-based BDI Furniture, meanwhile, is front-loading orders and relying more on factories in Turkey and Vietnam, with the larger goal to cut its dependence on China from 60% to 40% of total orders within the next three years.
The Virginia-based furniture manufacturer has also asked freight brokers to bypass the Panama and Suez Canals and ship goods across the Pacific Ocean to California, where they can be transported by rail to its US warehouse on the East Coast, Reuters reported.
Hanna Hajjar, vice president of operations at BDI Furniture, told the outlet that it has low stocks of some media cabinets, bedroom and office furniture that are already on ships.
“We just did not expect all these recent delays,” he said, adding that the disruptions have lengthened transit times from Vietnam by as many as 15 days.
This story originally appeared on NYPost
