AYABONGA CAWE: Supply chain blockage in Asia-Europe trade likely to persist due to conflicts

On New Year’s Eve a Maersk vessel, Hangzhou, was fired on by small boats having been struck by a missile off Sudan earlier. US and British retaliation has followed, with air strikes targeting Houthi sites and other installations.

There will probably be a supply chain “blockage” in Asia-Europe trade for much of 2024. Not far from the Port of Sudan in the Red Sea, conflict between the RSF and Sudanese army has killed more than 12,000 people and displaced more than 7-million, the UN says.

All of this signals the likelihood of an escalation of the wider regional conflict, with global implications. On the trade front, the conflicts in Ukraine, the Middle East, Sudan, the Sahel and elsewhere have had varying effects on the economic and social decisions made by multinationals, shipping companies and households. 

The Suez Canal route manages more than a tenth of global shipping, largely containerised goods, but due to the smell of gunfire it seems little cargo will go via that route for the foreseeable future.

Maersk, which owns more than 15% of global shopping capacity, has diverted all its vessels that had intended to go via the Suez Canal into the Red Sea and Gulf of Aden, via the Cape of Good Hope. So too have Hapag-Lloyd and others, adding about 6,000km to their journeys, $1m in additional fuel to connect Europe to Asia, and a further 10 or more days, Dutch bank ING says.

With all these vessels coming our way, are we ready to benefit from some of the assistance and services that could be provided to them? Transnet has indicated that it has not seen a significant increase in the number of vessels stopping over at its ports due to the situation in the Red Sea. Yet while most of these vessels would have no cargo destined for SA, they may need to refuel or get other supplies.

“[Transnet National Ports Authority] will make lay-by berths available on request for bunkers and stores and provide support where required”, Transnet said, suggesting that due to the “improved availability” of resources as part of its container vessel congestion turnaround plan such capacity will be available where needed.

Yield opportunity

In most crises, the economic fallout is seen in prices, technology and the nature of raw materials underpinning the production of goods required for cross-border trade. In 1973 it was the Opec crisis that made fuel supplies and sources matters of increasing geopolitical significance. That remains so now.

Prices are the other element. A small manufacturer of lighting equipment based in Centurion told me that LED drivers (a key input) became far more expensive towards the end of last year as shipping insurance and other costs made longer supply chains more costly. Such costs are invariably passed on to consumers, implying that in key global production networks the conflict may yield opportunity for SA and other manufacturers of inputs that are (or will be) costly to ship from Asia to Europe and vice versa.

How long will the higher prices last? That might be determined by the degree to which de-escalation efforts in the region succeed. It may be determined by whether the generals in Sudan meet and tease out a ceasefire, the Israeli-Palestinian situation cools off, and on the action (or indifference) of influential neighbours such as Saudi Arabia, Egypt, the UAE and Iran. Higher prices may extend not just to product prices, but also the cost of capital, as price inflation will probably be confronted with higher lending rates. 

All of these developments will recast not just the historic role of the Cape of Good Hope in global shipping routes but also — as we have seen with past geopolitical and economic crises — who gets to work and eat, and on what terms and at what price.

• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.