Red Sea unrest is bad news for World’s food supply
Shipping disruption risks higher prices and food spoiling. That’s threatening to halt a slowdown in global food inflation.
Shipping disruption risks higher prices and food spoiling. That’s threatening to halt a slowdown in global food inflation, notes Bloomberg.
Chaos in the Red Sea is starting to disrupt shipments of produce from coffee to fruit — and threatening to halt a slowdown in food inflation that brought some relief to strained consumers.
Vessels loaded with foodstuffs are among those avoiding Houthi attacks in the key waterway by sailing around Africa, a longer and costlier route. But unlike gas, oil and consumer goods cargoes that have also been affected, lengthier shipping times risk making perishable foods unsellable.
That’s spooking the industry. Italian exporters fear kiwi and citrus fruits will spoil on the way, Chinese ginger is getting pricier and some African coffee cargoes were briefly delayed. Grain is being diverted from the Suez Canal and a livestock carrier bound for the Middle East has changed course.
While the impact is so far limited, it’s a reminder of how fragile food supply chains can be. If disruptions worsen, they could stall the slump in food-commodity costs that had started to filter through to cheaper grocery bills.
“Everyone is a loser here,” said Nitin Agrawal, managing director of Euro Fruits, a major Indian grape exporter. The company usually ships to Europe via the Red Sea, but now uses the longer route that’s more than quadrupling freight costs and doubling transit times.
Italian exporters, which sell about $4.4 billion of agricultural produce to Asia, are worried that going around Africa will hurt freshness and add to costs for fruit like apples, kiwi and citrus, said Massimiliano Giansanti, president of farm group Confagricoltura. Meat faces similar concerns, and India’s buffalo-meat shipments bound for regions like North Africa are grappling with delays, said Fauzan Alavi, spokesperson of All India Buffalo and Sheep Meat Exporters Association.
It’s also a headache for farmers who could have to cut their prices to make up for higher shipping costs.
“We have to sell even if prices fall as we can’t prolong the harvesting period,” said Sandeep Dagu Sandhan, a grape grower in India’s state of Maharashtra, where harvesting has started in some areas. “Exporters always manage to cover their costs. It will be our losses if prices crash.”
The shipping issues are also a concern for Europe’s exports of products like pork, dairy and wine, as well as imports of tea, spices and poultry — though it’s unclear the extent of any impact — according to CELCAA, which represents agri-food traders. And ships carrying about 1.6 million tons of grain and headed for the Suez Canal were diverted to other routes in recent weeks, intelligence firm Kpler said. Most of that will be crops going to China and Southeast Asia.
Fresh ginger prices have jumped more than a third since December at East London’s New Spitalfields Market. Muhammed Patel of wholesaler Amer Superfresh Ltd., which usually sources from China, said suppliers are raising costs to account for longer journeys. “Every now and then we have delays, but nothing like this,” Patel said.
Some traders have even delayed cargoes. UK-based coffee importer Mercanta briefly halted loading in East Africa while it awaited clarification of the route carriers will take. While it has decided to load again, any delays will slow sales to Europe at a time when shipments in the Americas also face constraints, including at the Panama Canal.
Some ship insurers are starting to avoid covering US and UK merchant ships against war risks when they navigate the southern Red Sea, another sign of blowback since the two nations’ airstrikes on Yemen, notes Bloomberg.
As a result, underwriters are seeking exclusions for vessels with links to the US, UK and Israel when issuing cover for trips through the area, according to Marcus Baker, global head of marine and cargo at Marsh. It essentially means they won’t provide insurance.
“Underwriters are adding clauses saying no US, UK or Israeli involvement,” he said. “Just about everybody is putting something like that in, and many include the words ‘ownership’ or ‘interest’.”
Yemen’s Houthis said that US and UK ships were legitimate targets for attack, after the two nations launched their barrage of airstrikes.
British oil major Shell Plc halted tanker transits through the region, according to the Wall Street Journal. Japanese shipping giant Mitsui OSK Lines Ltd., with a fleet of about 800 vessels, also halted transits, a spokesperson said Tuesday. Nikkei reported that two other Japanese shippers, Nippon Yusen KK and Kawasaki Kisen Kaisha Ltd., are also suspending all routes going through the area.
War risk rates have gone into a frenzy in recent days following the US and UK strikes, with cover surging to 1% of a ship’s value from about a tenth of that a few weeks earlier. That would mean it costs about $1 million to cover a vessel worth $100 million.
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