Red Sea freight blockage has potential to disrupt all supply chains

The Freight & Trade Alliance (FTA) is Australia's leading representative body for the international supply chain sector, covering importers, exporters, customs brokers, freight forwarders, logistics service providers and industry groups.

Several vessels passing through the Bab-al Mandab Strait, which connects the Red Sea to the Indian Ocean, have been attacked, resulting in four major shipping lines suspending movements through the area.

The four shipping lines, the world's largest, Mediterranean Shipping Company (MSC), French company CMA CGM, Danish giant Maersk and German transport company Hapag-Lloyd have now suspended Red Sea journeys.

Between them, they make up 53 per cent of the world's container trade.

FTA director Paul Zalai said although that predominantly affected ships serving the Asia to north Europe and Mediterranean routes, recent experience had shown there would be serious impacts in other regions if the situation escalated or lasted for a prolonged period.

That was evident from events in March 2021 when the mega-vessel Ever Given ran aground in the Suez Canal.

"The impact of the waterway closure for six days threw vessel schedules internationally into disarray - this may fade into insignificance compared to the current conditions that are likely to continue for a significant period with other shipping lines likely to follow, understandably not wanting to endanger the lives of seafarers, the safety of vessels and the cargoes they carry," Mr Zalai said.

"We are likely to know more in coming days - should marine insurers withdraw policies for ships passing through the area or declare the Red Sea a 'war zone', shipping lines will be commercially left with little option but to abandon this key waterway."

He said the withdrawal of vessel services from the route would mean their diversion via the Cape of Good Hope

"This will add about 10 days to transit times and estimated arrival dates in north Europe and Mediterranean ports - we can again expect that shipping lines will recover these costs through additional surcharges on cargoes."

The concerns come as the Australian Competition and Consumer Commission found stevedoring charges at ports were skyrocketing.

Southern Grains Storage director Campbell Brumby, Winchelsea, said his biggest issue was access to empty containers, to export lentils and faba beans to Egypt and south-east Asia.

He said that was largely due to industrial action at the Port of Melbourne.

"That's jamming our system, for both growers and our storage systems," he said.

"When we expect to get the product into the silos, get them packed and get them out, that's been pushed back by a week to 10 days and maybe even a fortnight in some cases," Mr Brumby said.

"That acts as an impediment to the throughput we can achieve."

He said workers at Port of Melbourne stevedoring firm DP World were on a 'go slow' in loading vessels, resulting in a reduced number of container movements.

That, in turn, meant fewer containers were available.

The problems in the Red Sea would have an impact "in time, if it's not sorted out.

"I just don't see how they will let it drag out, they will put some military resources to stop this, within a week to 10 days," he said.

"It will be brought to a head pretty quick smart."

Rain had also had an impact on getting crops off, and out, of the paddock, he said.

Dairy Australia Economics, Data and Insights head John Droppert said while Australia exported very little to Europe and the UK, the trouble was more likely to cause delays for some imports from that part of the world, as well as higher shipping costs.

"From what I understand however, freight costs are well off 2021/22 highs, so we are nowhere near uncharted territory in that one route is affected more than others - so it may impact relative competitiveness of European product in the short term, both here and to markets in which we compete (China, Japan, southeast Asia).

"In the past, shipping disruptions have prompted some extra demand and minor price rallies as buyers get nervous about product arriving, and make sure to cover themselves with product they know will arrive."

He said there would be similar implications for farm inputs, such as machinery - including milking plant - and spare parts supplied by European manufacturers.

"The implications of a longer distance for a major global shipping route would include vessels taking longer to complete voyages and consequently lower shipping availability overall (with some level of price impact)," he said.

Victorian Farmers Federation Transport and Infrastructure committee chair Ryan Milgate, Minyip, said he didn't think exporters and importers had fully recovered from the COVID-19 pandemic and the Ever Given incident.

"Are we going to see similar impacts as to what we had in COVID, with longer supply chains and increased costs?" Mr Milgate said.

"I don't think we have fully recovered from them, yet - it's amazing how one little issue in the supply chain takes so long to sort out.

"Any interruption is a bad one - we got to the end of 2020 and thought 'thank goodness for that' - but things have got worse, ever since."

He said "to go back to square one" was the last thing primary producers needed.

Mr Milgate said there was already an issue with getting machinery parts - "a lot of trades are saying its the new norm, and it's really difficult to do business.

"You just have to wait so long."