STEVE INSKEEP, HOST:
Let’s ask about the real-world effects of one of the conflicts around the Middle East. Houthi militants in Yemen have been attacking commercial ships passing by their shores in the Red Sea. It’s one of the world’s busiest trade routes leading to the Suez Canal. This week, Houthis fired missiles at a Brazilian vessel full of corn. The United States and other nations have ships on hand to respond, but what have shipping companies and their customers done? NPR’s David Gura is following that aspect of it. Hi there, David.
DAVID GURA, BYLINE: Good morning, Steve.
INSKEEP: How are companies responding?
GURA: Well, quite quickly, one shipping analyst told me, and quite uniformly. Many container ships are now being routed all the way around Africa instead of through the Suez Canal, where traffic fell by 43% last month.
INSKEEP: Wow.
GURA: That’s according to the IMF. And more recently, we’ve seen vessels carrying food and grain also take this longer route, along with tankers full of oil and liquefied natural gas. They’re going this way because it’s seen as safer, even with this new international coalition patrolling the Red Sea, but because it’s a farther distance, Steve, thousands of miles longer, it’s also more expensive, requiring more fuel and extra insurance.
INSKEEP: How much stress is that putting on the global supply chain?
GURA: Well, it’s a strain. In normal times, about 10% of the world’s cargo goes through the Red Sea. But I want to stress this is nothing like the delays and disruptions and difficulties companies dealt with during the pandemic. That said, these attacks are definitely having an impact on trade across many different industries and especially in Europe, because many of the goods European countries import from Asia and the Middle East travel through the Red Sea. A few weeks ago, Tesla, Volvo had to pause production at factories in Europe, and Ikea, the furniture maker, says these disruptions are going to lead to delays. And for shipments that are more time sensitive for goods that are perishable, we’re seeing companies using airplanes instead of ships.
INSKEEP: Airplanes. OK. So how big a deal is all of this for the United States?
GURA: Well, so far, analysts and industry groups say it’s been manageable, but they are worried about what would happen if this were to drag on. Eric Byer heads the Alliance for Chemical Distribution, and he says companies are having a harder time getting citric acid, a lot of which is made in China and India.
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ERIC BYER: That’s used in things like the Vitamin Water and the Gatorade that we drink after we work out.
GURA: Along with other chemicals that are used in cleaning supplies. This is also a challenging situation for U.S. exporters who ship goods overseas. At a recent hearing in Washington, Eric Bartsch, who’s with the USA Dry Pea and Lentil Council, said it’s gotten harder and more expensive to export beans and chickpeas because of all the disruptions.
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ERIC BARTSCH: This leaves the exporters scrambling for alternative routes and possibly paying, you know, up charges for route changes.
GURA: Trade associations say their members have absorbed these higher costs. They’ve been resilient. But Steve, they’re not sure how long that can last.
INSKEEP: OK. I’m kind of fascinated, really, David, to learn that my Gatorade or my 409 or my window cleaner are based on some ingredients from around the world, a global supply chain. But what happens if this standoff goes on and on?
GURA: Well, it’s likely companies will start to pass on those higher costs to their customers. And this is what’s most concerning to economists. We’ve seen the fed and other central banks move so aggressively to bring down inflation, and these disruptions could lead to higher prices. There is no indication of a big spike, but the risks increase the longer this lasts. And what’s making this disruption more challenging is it’s happening at a time when there are other sources of strain. Halfway around the world, a third fewer ships are going through the Panama Canal because of a drought.
INSKEEP: Yeah.
GURA: But Darcy MacClaren, who consults with two dozen industries on supply chain issues at SAP Global, says companies are taking a new, more proactive approach post-pandemic.
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DARCY MACCLAREN: We’ve really changed how we view the supply chain. It’s no longer about cost and efficiency, it’s really about risk prevention.
GURA: These companies are actively identifying other routes, different suppliers, so they can pivot if they need to, Steve, which is what we’ve seen here.
INSKEEP: NPR’s David Gura. Thanks, as always.
GURA: Thank you. Transcript provided by NPR, Copyright NPR.
