Red Sea shipping crisis stokes further inflation fears after Houthi attack

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.

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.

“One way or another, the cost of your goods are being affected …. The longer [the shipping disruption] goes on, the more you’ll start to see companies pass on the price to consumers,” Robbins said.

The impact is likely to be more acutely felt when retailers start restocking shop shelves for spring in about a month, he added.

The incident occurred just as the US military acknowledged conducting new air strikes targeting the rebels, indicating that the unrest is unlikely to subside.

On Tuesday, benchmark oil futures were hovering near three-week highs with Brent Futures trading at US$83.48 a barrel and US West Texas Intermediate crude for April delivery quoting around US$78.36 a barrel.

“After easing substantially throughout most of 2023 – falling to levels significantly below the historical average –