Unrest in the Middle East has business leaders concerned about the potential impact on their bottom line. The CEO of Marriott of Maersk recently shed light on how long disruptions in the Red Sea could last, revealing potential cost implications for consumers.
Initially, expectations were that the disruption would be short-lived. However, the base case is now leaning towards a month of disruptions, leading to significant costs. The longer this situation persists, the more expensive it becomes for consumers.
Vincent Clark, speaking from Davos, explained the repercussions faced by Maersk if they have to circumnavigate the Cape of Good Hope, which adds an extra two weeks to their journey. This ultimately translates into higher costs for consumers. Clark emphasized that the issue extends beyond the added time at sea. Global supply chains are intricately interconnected, and any delay or deviation from the norm incurs further expenses.
The level of threat posed by the current unrest in the Middle East is difficult to assess objectively. However, for Maersk, the priority lies in guaranteeing the safety of their crew, ships, and cargo entrusted to them by customers. In order to ensure safety, they have been forced to take the longer route, causing delays and increased costs.
The additional 10 to 14 days required to travel around the Cape of Good Hope result in several cost factors. Firstly, the extended journey adds approximately 8,000 more miles between China and the UK. Ships must now operate at full throttle, consuming more fuel and emitting higher levels of greenhouse gases. Moreover, ships will not be able to return to China on time, further disrupting the timely turnaround of containers. These factors contribute to a mounting pile of costs.
The situation is slightly different for the United States. Shipments from China to the US West Coast face increased costs as more traffic is diverted that way. From there, goods must be transported by train or truck across the nation, incurring additional expenses.
While this situation is not catastrophic, it is exactly what the global economy does not need. At a time when efforts are being made to lower prices and streamline operations, these disruptions pose significant challenges.
The exact cost implications of the prolonged disruptions are still unfolding, with Maersk working to gain a complete understanding. However, it is clear that the longer the unrest continues, the higher the costs for businesses and ultimately consumers. The need to accelerate journeys and increase fuel consumption adds to the financial burden, exacerbating an already fragile global economy aiming for stability and affordability.
