Manufacturers Navigating Red Sea Supply Chain Challenges

Manufacturers such as Ikea, Tesla and Bangladesh’s Garment Industry Face Delays, Price Hikes and Sustainability Struggles due to the Red Sea Conflict

After the past three years of supply chain disruptions, manufacturers have become hardened to supply chain delays. Manufacturers are in a stronger position now than they were before, quick to rethink routes and reorganise supply chains, to bring their products to customers. Yet manufacturers such as Tesla and Ikea have admitted that their inventory might be impacted.

 

Redrawing trade routes and the impact on manufacturers

The Red Sea, which leads to the Suez Canal, sees 12% of global maritime traffic. Since Iran-backed Yemeni Houthi militants began attacking freighter ferries across the Red Sea due to the ongoing conflict in Gaza, some manufacturers are taking a different route. 

Instead of sailing from Asia and through the Middle East then into Europe, they are taking the long way around the south-west coast of Africa. However, this costs more in fuel and adds up to two weeks in shipping time. The transportation sector is responsible for 20% of the world's total carbon emissions and this new route will only add to that.

Car manufacturer Tesla has paused manufacturing at one of its factories close to Berlin for two weeks, due to a delay in the delivery of certain car parts.

“This is a fresh blow to Tesla’s production targets and comes amid fierce competition from Chinese manufacturers,” said Susannah Streeter of Hargreaves Lansdown. “The China-based automotive giant Geely, which owns Volvo and Lotus, has also flagged that there would be a delay to deliveries of EV models in Europe.”

Meanwhile, Ikea is determined to continue with its planned price cuts, regardless of increased shipping costs.

“This is not a year for us to optimise profits. This is a year to try to navigate on a thinner profit, but to make sure that we support people,” said Jesper Brodin, leader of Ikea’s parent company Ingka Group.


Fast fashion slows down, as Bangladesh’s garment manufacturing takes a hit

Bangladesh’s garment industry brought home US$47bn in 2023, out of US$55bn of its annual export earnings. But due to the Red Sea conflict, shipping companies have increased container transport charges from Bangladesh to Europe and America, by up to 50%. 

Some garment manufacturers have been asked by their buyers to send items over by airfreight.

"Airfreight costs 10-12 times more than the normal shipment. If we make any air shipment, it means we are in red for that order," said Rakibul Alam Chowdhury, Vice-President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). "But we don't have any option as if we can't deliver on time, we will not get future orders from that buyer."

On a mission to get world shopping and shipping back to normal, the USA has launched strikes on 60 targets at 16 Houthi militant locations.

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