Why the Red Sea has become retail’s nightmare before Christmas

In November of last year, armed Houthis began attacking international shipping in the key corridor of the Red Sea beyond the Suez Canal – sparking a wave of stories about the effects this was having on global supply chains.

As a result of the attacks, some retailers were forced to reroute deliveries around the Cape of Good Hope, adding days to lead times and thousands of pounds to costs. Others were forced to fork out eye-watering sums on air freight or look to near-shoring in their supply chains to make up the slack.

By the start of 2024, however, the story had dropped off the news agenda. Shipping costs began to drop as the international supply chain normalised. But, with Israel’s war on Gaza showing no signs of abating, the supply disruption in the Red Sea is dragging into a seventh month.

Back in November, retailers were already looking ahead to Christmas 2024 with a growing sense of trepidation.

At the time, one told Retail Week: “If everything stopped tomorrow, it would still probably take a good four to six months to normalise, so we could find ourselves in a situation where that might start to impact preparations for next Christmas.”

That time, it seems, has come. Shipping costs have been rocketing upwards in the last few weeks. As a result, retailers are beginning to get twitchy about potential higher prices for customers, or even availability issues, for certain products at Christmas.

“The thing that can really make things worse for the global supply chain is this rush for the door, where everybody starts to order more than they need; you get this bullwhip effect”

Vincent Clerc

In a bid to avoid that nightmare scenario, many retailers are looking to take stock of Christmas products much earlier in the year – which is creating its own problems.

This has led to what Vincent Clerc, head of AP at Møller-Maersk, one of the world’s largest shipping companies, calls “an almost vertical” increase in shipping costs in the last month.

“At this stage, the thing that can really make things worse for the global supply chain is this rush for the door, where everybody starts to order more than they need; you get this bullwhip effect,” he says.

One retail source added that a rise in demand is not only leading to an increase in prices but also a lack of available container ships. “There’s definitely less available ships than there is for the demand,” they said. “Shipping firms are still avoiding the Red Sea and taking longer routes. That means you need more ships on the water to maintain the same flow of goods.

“Whether that resolves itself in time for Christmas, I don’t know. But on the Beijing to Rotterdam route, for example, the spot rates [short-term freight prices] have definitely gone up.”

The source says that one container, which might have cost $4,500 (£3,524) a few weeks ago, could now cost $7,500 to $8,000 (£5,873 to £6,264) today.

While this is nowhere near the stratospheric heights seen at the back end of last year – where some experts were quoting that costs had hit as much as $20,000 (£15,660) per container – the increases will not be welcomed by retailers in the run up to the festive period.

“Freight rates are definitely starting to increase,” says the boss of one fashion retailer. “Although, it’s much less severe than the pandemic. We’re still seeing the risk of 12 days [delay] as well, which is causing shifts to production times.”

Senior director at Manhattan Associates Martin Lockwood says that “while shipping delays pose a risk to all retailers” – those reliant on long-distance imports such as electronics, furniture and household goods could be particularly affected.

“Holiday demand spikes could put added pressure on existing bottlenecks,” he adds.

“If there’s a product we can buy locally for a similar or even slightly higher price, then we’ll take that option. Sourcing locally is going to be the solution”

Food retailer

And, Red Sea issues continue to affect some food retailers, too. The boss of one international food business admits that it is also dealing with increases in costs on certain products and has had to turn to more local sourcing to meet demand.

“If there’s a product we can buy locally for a similar or even slightly higher price than what we were paying before, then we’ll take that option.

“If that price locally is completely different, then we might have to look at other solutions. But I think, for the foreseeable future, sourcing more locally is going to be the solution.”

While the retail sector isn’t currently facing the risk of Christmas being cancelled this year as a result of ongoing Red Sea issues, with every day that it drags on, the likelihood of customers having to pay more at the tills over the festive period increases – and that’s making retailers in the UK, and around the world, increasingly nervous.