Tensions on the Red Sea and in transport: Fashion is one of the most affected sectors

The cost of rent has doubled and transport times have increased considerably. The tensions surrounding the Red Sea in connection with the attacks by the Houthi Rebels are having an impact on the national and European economic system. A survey by the Italian business association Confcommercio has highlighted the impact of the crisis in the Red Sea on the transport system and the import-export business of Italian companies.

Shipping times to the Far East extended by ten to twelve days

Expressed in figures, transport times for Far East traffic will increase by ten to twelve days due to the circumnavigation of the African continent. Freight costs for a 40-foot container on the Shanghai-Genoa route have more than doubled since 2023 (up 129 per cent). Shipping transit through the Suez Canal, through which around 40 per cent of Italian maritime trade (around 154 billion euros) flows, has fallen by more than a third. This represents a major disadvantage both for the national ports, particularly those on the Adria such as Trieste and Venice, which are more affected by international traffic, and for the Italian system in general.

As far as the international trade of Italian companies is concerned, Confcommercio states that the biggest problems relate primarily to imports. It is estimated that 16 per cent of Italian imported goods in terms of value pass through the Suez Canal. If imported goods do not arrive, Italian companies are often heavily penalised as suppliers in a supply chain. The automotive industry, the fashion industry and some food sectors are the sectors that are suffering the most from the slowdown in imports and reduced maritime traffic via the Suez Canal.

Freight costs have more than doubled

Therefore, apart from the need to restore the safety and practicability of the Suez Canal route, Confcommercio believes that immediate measures are needed in the transport and logistics sector, such as the suspension of the Emissions Trading Scheme (ETS) for traffic destined for European transhipment ports, such as Gioia Tauro, and the lifting of restrictions on the transit of lorries through the Alpine passes (Brenner). On the import-export side, forms of contractual protection or ad hoc insurance must be created immediately for companies that are forced to pay penalties to their customers for delays or non-delivery of imported goods.

According to the Drewry Research Centre, freight rates for a 40-foot container on the Shanghai-Genoa route averaged 6,300 US-dollars (5,850 euro) in the last week of January, an increase of 129 percent compared to the same period in 2023.

Longer transport times and the associated increase in transport costs are already having an impact on the national and European economic system. Delays in delivery, for example, affect industries that are particularly dependent on deliveries from China, such as the automotive industry, due to production restrictions and temporary plant closures. On the other hand, trade between countries is inversely proportional to their distance and the resulting transport times. For trade between Singapore and Rotterdam, a route that has increased by around 40 per cent due to the circumnavigation of Africa, this would result in a decline of around 30 per cent.

The impact on the international trade for Italian companies

A full quantification of the higher container transport costs and longer delivery times due to the (longer) alternative routes on the import-export activities of Italian companies is still in progress. On the one hand, experts from the Kiel Institute point out that the current situation is not comparable to the times of the Evergiven incident in the Suez Canal and the coronavirus pandemic; on the other hand, the above-mentioned analysis of the elasticity of trade exchange versus transport distance suggests that smaller and less structured companies will have greater difficulty absorbing the higher costs and will exit the market.

The vast majority of Italian exports go to other European countries and the United States, but the biggest problems occur on the import side. Looking at the 15 most important countries of origin of Italian imports, only two countries are still potentially affected: China (in second place, 8 per cent of Italian imports) and India (in fourteenth place, 1.6 per cent of Italian imports), but the volumes are almost twice as high, with the Bank of Italy estimating shipments through the Suez Canal at 16 per cent of Italian goods imports by value.

This article originally appeared on FashionUnited.it.