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Global Category Intelligence
Q2 2025
Global Category Intelligence
Q2 2025
Red Sea Risks, Impacts on the Supply Chain & Mitigation Strategies
Recent Houthi militant attacks in the Gulf of Aden/Red Sea region have disrupted maritime trade, causing major shipping companies to reroute vessels around the Cape of Good Hope. This change avoids the high-risk Red Sea/Suez Canal area, a critical route linking Europe and Asia. The Bab El Mandeb Strait, a 20-mile-wide channel in the Red Sea, plays a pivotal role in connecting the Indian Ocean to the Suez Canal.
The Baltic and International Maritime Council (BIMCO) urgently calls for international action to protect these essential shipping lanes. Emphasizing the importance of safe and unobstructed maritime trade, BIMCO highlights that around 30% of global container traffic, amounting to over USD 1 trillion in goods annually, passes through the Suez Canal. These unprovoked attacks believed to be from the Iran-aligned Houthi movement, threaten not just the regional stability but also the global economy, underscoring the necessity for collaborative efforts to secure these vital maritime routes.
Impact of Houthi Attacks:
Houthi attacks have targeted various vessels, causing a strategic shift in maritime operations. Approximately 60% of the global container fleet is now avoiding the Red Sea, impacting several leading shipping firms, including Maersk, MSC, Hapag-Lloyd, CMA-CGM, ZIM, YML, and COSCO. Some carriers, such as OOCL and Evergreen, still have ships in the Red Sea and have decided to cancel port calls in Israel.
BP has paused shipments through the Red Sea among the major oil companies.
Quantifying the Disruptions:
Transit Times - The typical voyage from Singapore to Rotterdam via the Cape of Good Hope spans about 11,747 nautical miles, almost 40% longer than the Suez Canal route at 8,288 nautical miles, significantly extending delivery times. For our Jabil cargo, the transit time will be an extra 10 to 12 days for Poland and 12 to 15 days for Koper. (We are currently exploring options for Northern European Ports)
Freight Costs - The prolonged transit times result in increased fuel consumption and higher crew wages, consequently elevating operational expenses for shipping companies. These augmented costs are expected to be transferred to consumers, leading to a rise in freight charges. For European inbound cargo, January rates are anticipated to increase by 20-60%, varying with the carrier and contingent on the ongoing activities in the Red Sea and the duration of these disruptions.
French shipping and logistics company CMA-CGM stated in their update that they are invoking Article 10 of the Bill of Lading clauses. This article allows them to reroute the cargo via an alternate route. Clause 10 explicitly states: “If the Carrier elects to invoke the terms of this Clause 10(a) hereof, he shall be entitled to charge such additional Freight, including extra war risk charge as the Carrier may determine, […]”. Consequently, shippers should be prepared to face potential extra charges for the cargo already onboard the vessels).
Supply Chain Impact - The increase in delays and costs due to these disruptions is causing significant upheaval in established supply chain schedules. This situation affects the timely delivery of goods and can potentially impact many industries that rely on maritime transportation.
These impacts, combined with the ongoing water crisis in the Panama Canal, could contribute to significant disruption in global supply chains. To learn more about the drought impacts on the Panama Canal, see Jabil’s Q4 2023 Alert, Panama Canal Water Levels Impacting Shipping.
Insurance Adjustments - The rerouting of vessels due to increased risks in the Red Sea necessitates changes in insurance coverage and risk assessments, potentially leading to higher premiums for the longer and more hazardous journey. A War Risk surcharge will likely be introduced for vessels transiting through the Red Sea, contributing to additional freight rate surcharges, including bunker adjustment factors.
Mitigation Strategies and Solutions:
In response to these challenges, our carriers are adopting a range of strategies:
- Implementing diverse transport solutions like FEWB Rail.
- Traditional Sea/Air through the Middle East-Dubai & Doha.
- Working on a deferred Air/Air service through Chennai (MAA) – Per our carriers, this has served well through peak season at around a 10–12-day transit, saving around 30-40% against pure Air.
International Response
The United States has announced the formation of a 10-nation coalition aimed at countering H Houthi missile and drone attacks targeting ships in the Red Sea. The coalition, including the U.S., the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles, and Spain, seeks to ensure freedom of navigation and bolster regional security and prosperity. The coalition's formation underscores the international community's commitment to safeguarding maritime routes against non-state actors' aggression.
The current situation remains fluid, and the extent of the disruption's duration and its long-term implications for global trade and supply chains are still unfolding. We will keep you informed of the latest developments as they emerge, ensuring you receive timely and relevant updates.
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