TITLE: Red Sea crisis forces Michelin to halt output in Spain next weekend
https://www.reuters.com/business/autos-transportation/red-sea-crisis-forces-michelin-halt-output-spain-next-weekend-2024-01-16/
EXCERPT: Four factories in Spain owned by French tyre maker Michelin are planning to halt output again on the weekend of Jan. 20-21 due to delays in the delivery of raw materials caused by the crisis in the Red Sea, the company's Spanish subsidiary said on Tuesday.
The United States and Britain launched a series of strikes on Yemen last week, aimed at the Iran-backed Houthi militia, whose attacks on international shipping have disrupted one of the world's most important routes since December.
A dozen shipping lines have opted to divert ships that previously used this route via southern Africa, increasing the crossing time for supplies to Europe by about 10 days.
Michelin had already suspended work shifts at its Spanish plants on the weekend of Jan. 13-14 due to longer delivery times of raw materials it needs to produce rubber and that are delivered by sea from Asia, the company told Reuters.
TITLE: The Red Sea Conflict Is Slowing Car Production
https://www.kbb.com/car-news/the-red-sea-conflict-is-slowing-car-production/
EXCERPT: The escalating crisis in the Red Sea is beginning to affect the global supply of new cars. We haven’t seen any impact on pricing in the U.S. — yet. But the number of new vehicles produced in Europe is shrinking as automakers respond to escalating attacks on ships crossing the Red Sea to use the Suez Canal on their way across the world.
Volvo and Tesla halted production at some European plants due to parts shortages, Bloomberg reports.
Tesla currently builds all of the cars it sells in the U.S. domestically. But Bloomberg reports Volvo will pause its massive factory in Ghent, Belgium, for three days this week because of supply shortages. That factory builds models such as the XC60 for the U.S. and is gearing up to build the new EX30 small electric SUV.
Stellantis, the parent of brands including Jeep, Dodge, and Chrysler, tells Bloomberg it switched to relying on air freight for some parts and experienced “almost no impact on manufacturing to date.”
Volkswagen, meanwhile, says it began “rerouting shipments of car parts around South Africa instead of through the Suez Canal last month” as the crisis built. The company says it has already incorporated the effects of the longer shipping process into its production schedule.
“The Iran-aligned Houthis, who are well equipped and trained, have launched multiple attacks on ships in the Red Sea since November,” Reuters explains. The group says it is acting in response to Israel’s war with Hamas.
Initially, Yahoo says, the group “said they would only target Israeli vessels or ships destined for ports in Israel,” but “many of the targeted ships have had no links to Israel.” An American-led coalition responded by striking Houthi launch and supply sites over the weekend. In response, the group said it will target U.S.-linked ships.
The situation has increased shipping insurance costs, which could raise the price of many consumer goods. That could take time, but shipping industry experts don’t expect the crisis to be short-lived.
“We are looking at months rather than weeks or days before this crisis reaches any kind of resolution,” Peter Sand, chief analyst at freight platform Xeneta, told Bloomberg.
A supply chain crisis caused car prices to soar in 2021 as the auto industry faced a global shortage of microchips. The growing Red Sea crisis may not be as severe because there is no parts shortage, and ships can take the longer route around South Africa. However, that option delays shipping and makes it more expensive.
TITLE: What the Red Sea crisis could mean for commodity markets
https://think.ing.com/articles/red-sea-crisis-and-commodities
EXCERPT: For commodity markets, the increased tension poses supply risks, with energy markets most vulnerable. However, for oil and LNG, we are not seeing any fundamental impact on supply yet. Refiners and consumers could initially face some tightness as supply chains adjust to the longer route. Given the uncertainty and the risk of a spillover, oil prices are likely to remain relatively well supported. In order to see oil prices breaking significantly higher, we will need to see even further escalation and/or a meaningful loss in oil supply.
It is unsurprising that oil flows via the Red Sea are significant given the level of oil production in the region. Around 12% of total global seaborne oil trade goes through the Red Sea, alongside large flows of both crude oil and refined products. And this applies to northbound flows towards the Med and Europe, as well as southbound flows which ultimately go towards Asia.
According to the EIA, in the first half of 2023, 9.2m b/d of oil (both crude and refined products) went through the Suez Canal and SUMED pipeline. Meanwhile, 8.8m b/d went through the Bab el-Mandeb Strait, the chokepoint between Yemen and Djibouti. Volumes through the Suez and SUMED are larger, given that there will be some Saudi flows exported from the Red Sea (via the East-West crude oil pipeline) to Europe.
Since Russia’s invasion of Ukraine, there has been an increase of oil flows southbound towards Asia. This is a result of the EU’s ban on imports of Russian oil, which has seen Russian shipping to alternative destinations, particularly India and China. Some Middle Eastern countries have also taken larger volumes of Russian refined products, particularly Saudi Arabia.
Europe will also be pulling in more middle distillates from Asia and the Middle East via this route since the Russia-Ukraine war. According to Refinitiv shipping data, in 2021, middle distillate (gasoil/jet fuel) flows from the Middle East and Asia to Europe averaged a little over 490k b/d, whilst in 2023, these flows averaged almost 860k b/d. A large share of this would go via the Red Sea.
There have been announcements from a growing number of shippers that they will avoid shipping through the region and instead go around the Cape of Good Hope. While tanker traffic through the Red Sea in December held up well, it started coming under pressure in January, particularly after the US and UK airstrikes in Yemen. This obviously means longer voyage times, which could lead to some tightness in oil and products as the market adjusts. It would also reduce tanker availability and push up rates.
TITLE: Red Sea, Panama Canal Send Container Freight Costs Soaring – What It Means For Global Economy And Wall Street
https://www.ibtimes.com/red-sea-panama-canal-send-container-freight-costs-soaring-what-it-means-global-economy-wall-3722101
EXCERPT: The escalating crisis in the Red Sea region and the Panama Canal drought create significant international shipping and logistics challenges.
For instance, the Panama Canal drought causes severe shipping delays from Asia to the U.S. East Coast, particularly for heavy goods. Carriers are rerouting from trans-Pacific to trans-Atlantic via the Suez Canal, intensified by Red Sea disruptions, with alternate routes increasing transit times by 20-30%.
Like 2020's supply chain disruptions, these delays may lead to port and warehouse overloads, reviving fears of renewed supply chain bottlenecks. They could lead to container shortages, soaring shipping rates and cost-push inflation.
The Containerized Freight Index has almost doubled since Dec. 1, from 976 to 1,896 points; it increased 446.46 points or 25.37% since the beginning of 2024 alone. Historically, the Containerized Freight Index reached an all-time high of 5109.60 points in January 2022.
Rising freight rates could have far-reaching consequences for both Main Street and Wall Street, including the spoiling of the efforts of central banks to bring inflation under control and eventually cut interest rates — a game-changing move for Main Street and Wall Street.