Maersk has updated its customers and warns the effects of the situation in the Red Sea are “widening and continuing to cause industry-wide disruptions”.
In its update, Maersk said it is rerouting around the Cape of Good Hope “for the foreseeable future.”
It added “the risk zone has expanded, and attacks are reaching further offshore. This has forced our vessels to lengthen their journey further, resulting in additional time and costs to get your cargo to its destination for the time being.”
Maersk explained the situation is creating bottlenecks and vessel bunching, as well as delays and equipment and capacity shortages.
“We estimate an industry-wide capacity loss of 15-20% on the Far East to North Europe and Mediterranean market during Q2.”
Global apparel sector remains on red alert
Though the Red Sea disruption will impact several industries, European apparel brands and retailers reliant on Asia for supply are expected to be hit particularly badly.
According to S&P Global Market Intelligence, shipments from Asia by sea that may need to use the Suez or Panama Canals accounted for 51.0% of EU imports of apparel and footwear in the 12-months to 30 November 2023.
While a report from the British Chambers of Commerce, which surveyed 1,087 businesses found some firms saw a 300% hike in prices for container hire, and others experienced logistical delays that added up to three to four weeks to delivery times.
At least half of UK manufacturers and retailers are impacted by the disruption.
Speaking to Just Style, Bob Antoshak, partner at textile management consulting and engineering company, Gherzi Textil Organisation explained costs will rise, and delivery times will be lengthened. The slower pace of deliveries will also affect product roll-outs and sourcing times.
In a recent blog post, Chris Rogers of S&P Global Market Intelligence said: “The seasonality of apparel supply chains means delays will become a bigger factor during the July to September peak season for sales running from back-to-school to Black Friday. Given shipping times that are normally of around five to six weeks have likely increased to at least eight weeks, that would suggest winter peak season shipments need to leave Asian ports from mid-May 2024, requiring purchase and production decisions to be made in April at the latest.”
“Options to tackle the higher costs, delays and uncertainty include absorbing the costs against earnings, changing transportation routes or modes, carrying more inventories, and altering sourcing practices. Comments from other consumer goods industries suggest firms may be willing to offset higher shipping expenses against reduced costs elsewhere.”
What should apparel brands and retailers do to mitigate disruption?
For a while now – in fact since the great pandemic of 2020 – there has been a lot of talk in the apparel sector about diversifying supply chains, specifically out of China.
The most recent events around the Red Sea crisis disrupting supply suggest that shift needs to be accelerated, according to apparel and retail trade organisations.
Maersk has added capacity where possible, leasing an additional 125,000 additional containers.
The surcharges on customer invoices reflect this and the shipping firm explains these are to offset the costs of the longer journeys, increased sailing speed, and additional fuel costs.
It is using 40% more fuel per journey and charter rates are currently three times higher and are often fixed for five years.
The American Apparel & Footwear Association (AAFA)'s SVP of policy Nate Herman noted members have “long been concerned” by growing risks to shipping in the Red Sea, particularly the knock-on effects that extend globally.
“Such adverse impacts unacceptably put sailors lives in danger, and come at a time when we are counting on smooth and cost-effective logistics routes to support renewed demand for our products.”
Meanwhile National Retail Federation (NRF) VP of supply chain and customs policy Jonathan Gold said its members are working closely with their product suppliers and transportation partners to address ongoing supply chain disruptions.
“Retailers continue to seek alternative solutions to mitigate any impacts from the Red Sea disruptions.”
Among the ideas for switching sourcing strategies that can help apparel brands and retailers mitigate supply disruptions are boosting inventories and diversifying supplies but Rogers warned these can add costs and leave them out of favour in a high-cost environment.
Dr Sheng Lu, professor of apparel studies at the University of Delaware, agreed: "The escalation of the Red Sea crisis will continue to raise shipping and insurance costs, delay shipments and squeeze fashion companies and manufacturers’ margins. The crisis has also negatively affected the global used clothing and recycling business, as substantial trade volumes passed through the area.
"While strategies such as diversifying sourcing base and using more air shipping may potentially mitigate the impact, none of these alternatives is cheap and perfect. Ending the Red Sea crisis remains the most critical and essential."
But Antoshak shared it may be that retailers and brands are left with little option but to diversify in the short term at least: “In turn, the longer these disruptions remain and shipping is adversely impacted, the more likely brands and retailers will have to locate alternative sources of supply to augment their Asian shipments. Diversification of sourcing will become more important, particularly if shipping remains uncertain and costs continue to rise.”
