Asian exporters face more Red Sea risks after US-led attacks on Houthis, alternative route adding to high costs

Asia’s manufacturing supply chains for spare parts, such as electronic goods and automobiles, to manufacturers in Europe are being threatened by the dislocation in the shipping route on the Red Sea, which has been ongoing since late December, said Cedomir Nestorovic, professor of geopolitics at Singapore’s ESSEC Business School Asia-Pacific.

“These industries follow Just-In-Time deliveries,” Nestorovic said, referring to the supply chain management approach that aims to increase efficiency by reducing inventory. “It is extremely important for them to get timely deliveries of spare parts,” he added, noting that some European firms have even set up manufacturers in parts of Asia such as China specifically to source their industrial goods.

Manufacturers will probably be able to tide over their short-term needs by tapping into stockpiles, but those could come under pressure unless the violence subsides and normal shipping movement resumes quickly, Nestorovic said.

The attacks have exacerbated traffic woes on the Suez Canal, where low water levels due to a drought in the region have reduced the number of vessels that can pass through the route since July.

Besides spare parts, exports of refined oil products such as gas oil, a variant of diesel, and kerosene to Europe from Asian refiners are also likely to be affected. Indian and Chinese refiners have been processing discounted Russian crude oil, which has been offered to them since the start of the Ukraine war.

“Asian refiners, particularly in countries like India that need to enter the Red Sea from the Bab el Mandeb strait, are running into difficulties marketing their diesel into Europe,” said Viktor Katona, crude oil analyst at data and analytics company Kpler.

The Bab el Mandeb