[ad_1]
Recent attacks on commercial ships in the Red Sea by the Iran-backed Houthi militia have forced companies to pay higher insurance rates or reroute cargo around Africa, increasing costs and delays that companies face. This could dent the profit margins and ultimately increase. Prices for consumers.
Several executives whose companies ship goods through the Red Sea and Suez Canal have said the impact so far has been limited, partly because they learned lessons from more serious, worldwide supply chain disruptions during the worst of the Covid pandemic. Is.
“Going forward, disruption will impact companies,” said David Simchi-Levi, a professor at the Massachusetts Institute of Technology. “Today it is the Red Sea, tomorrow it will be something else.”
Attacks in the Red Sea, which handles about 12 percent of global trade, have forced companies to make tough decisions. Going through the Red Sea would mean risking air attack and paying more for insurance. Avoiding routes leads to costly delays.
Ocean freight prices have soared since mid-December, more than tripling on the Asia-to-Europe route and more than doubling between Asia and the East Coast of the United States, according to analytics firm Zeneta.
For now, analysts expect its impact on consumers to be limited. Goldman Sachs analysts pointed out that shipping makes up a small portion of a product’s total cost. They estimate that the disruptions will increase global inflation rates by only ten percentage points this year.
Still, it’s a matter of concern for analysts and investors, who have raised questions with company executives on the earnings call. This is what business leaders are saying.
European companies will be the first to feel it.
The Red Sea is a particularly important route for companies moving goods from Asia to Europe. Now those goods cost more to ship and take longer to arrive.
This may also affect manufacturing in the area. The disruptions caused Tesla and Volvo to suspend production in Europe. Automakers rely on just-in-time production, in which parts arrive on the assembly line shortly before they are needed, leaving little room for shipping delays.
doc martens
Kenny Wilson, chief executive of the British shoemaker, said It suffered major delays in Europe, but had almost no impact in Asia or the United States. According to S&P Global, business in Britain was hardest hit by shipping delays in January.
“There are clearly cost implications to this,” Mr. Wilson told analysts on an earnings call Jan. 24.
bang and olufsen
Nikolaj Wendelboe, chief financial officer of the Danish audio equipment company, told analysts on Jan. 10 that the company was shifting some shipping to air or rail.
“There will be a slight increase in costs and it will take some time, but it’s nothing compared to what we saw during the COVID crisis, at least nothing compared to what we’re seeing right now,” Mr Wendelbo said. Is.”
LOGITECH
Chuck Boynton, chief financial officer of Logitech, a Swiss company that makes computer keyboards, mice and other accessories, said the company will ship more of its products made in Asia by air rather than by sea. Although it’s more expensive and could reduce profits, it’s better than having less inventory, he said.
“We will eat some margin to take care of customer satisfaction,” Mr. Boynton told analysts on Jan. 23.
American companies are less exposed.
Imported goods to the United States are not as dependent on crossing the Red Sea. Nevertheless, US companies and consumers are subject to a general increase in global shipping rates.
Not all industries are affected equally. Bank of America analysts said retailers were particularly exposed, with companies like Target and Dollar Tree facing greater risk of a hit to profits than their main competitors as they move more of their goods from Asia. Over supply of products. Those retailers have not yet reported their quarterly earnings, but other consumer-focused companies have discussed the impact on their earnings.
Amazon
Brian T. Olsavsky, Amazon’s chief financial officer, said the disruptions have not yet had a “material impact” on the e-commerce giant’s profit forecast for the current quarter.
“We remain vigilant on this and will work to take action where needed to ensure the customer experience is not impacted,” he said.
1-800-flowers
Bill Shea, chief financial officer of 1-800-Flowers, said the company won’t feel the impact until the disruption continues into the summer.
“The biggest unknown is how long the issues persist in the Red Sea and whether that affects future talks and next year’s holiday season,” Mr Xi told analysts on Thursday.
ethan allen
Farooq Kathwari, chief executive of Ethan Allen Interiors, told analysts the furniture maker hasn’t been hit by the turmoil like others because most of its products are made in North America.
“But if most of our product is coming from offshore, it will be an issue,” he said on a Jan. 24 earnings call.
