Turbulent Waters for Chemical Supply Chains in the Red Sea as Houthis Attack

The strategic waters of the Red Sea are a vital artery for global maritime traffic, however, have lately become a hotspot of conflict and disruption. Yemen’s Houthis have intensified attacks on vessels, causing significant upheaval in the chemical industry’s supply chains, particularly affecting Europe and Asia. According to the Independent Commodity Intelligence Services (ICIS), these disruptions are leading to skyrocketing shipping rates and extensive rerouting of vessels, significantly impacting the chemical sector.

The Red Sea route moves approximately 15% of the world’s ocean carrier traffic. But due to the ongoing disturbances on the route, ships navigating between Europe and Asia are now forced to take the longer and more expensive route around the Cape of Good Hope at Africa’s southern tip, adding an extra 10 days to a month of travel time.

The chemical industry, heavily reliant on container shipping, is particularly vulnerable. The industry uses containers to ship plastics such as polyethylene and polypropylene.

An ICIS official states that skyrocketing shipping costs, port congestion, and significant delays for container ships and tankers have been inducing a rearrangement of routes. He explained further that with the Panama Canal in the picture, the United States is not as exposed to the Red Sea-related time and cost overruns. But shipping is a global market and the United States does export a lot of polyethylene, a lot of polyvinyl chloride. Thus, shippers are having to pay higher rates, and they’re not happy about it.

Polyethylene, essential for products ranging from grocery bags to insulation for wires and cables, and polypropylene, used in a myriad of consumer goods, are among the materials most affected. The disruption in shipping routes is leading to a pile-up of chemical containers in ports across Asia, exacerbating the supply chain chaos.

Rates for 40-foot containers from Asia to North Europe have surged to USD 8,764.14, according to the Freightos Baltic Daily Index. Although the United States chemical supply chain is somewhat insulated from the Red Sea disruptions, it is not immune to the ripple effects. Rates for 40-foot containers from Asia to North America West stand at USD 7,993.11, reflecting the broader impact of the crisis.

On the other hand, China which is the world’s leading exporter of chemicals, accounting for 18% of global chemical exports in 2023, is also feeling the strain. Rising freight rates, shipping delays, and cancellations are causing significant logistical headaches.

“In India, chemical buys for biphenyl are at a 20-month high because of tight vessel space and rising shipping costs. Melamine companies in China are in a wait-and-see mode because of higher freight rates. Polypropylene from South Korea has seen recent cancellations on some shipments to Europe. For Asian polyester exports, the sentiment is just awful because of the high costs and poor margins,” the ICIS official detailed.

With no immediate resolution in sight, chemical buyers and suppliers are exploring alternative strategies. For instance, there’s been an increase in demand for breakbulk vessels from Turkish, European, and Indian buyers. European buyers, in particular, are turning to domestic suppliers and exploring breakbulk vessels to mitigate the shortage of container ships.

The extended and more expensive shipping routes circumventing the Red Sea are likely to persist through the end of the year. The ongoing disruptions are expected to ripple through global supply chains, ultimately impacting consumers with higher prices and reduced availability of certain products. As the chemical industry grapples with these challenges, the quest for more resilient and adaptable supply chain solutions continues.

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