Gregory D. DeYong is an SIU Carbondale associate professor of operations management. (Photo by Russell Bailey)
January 22, 2024
SIU logistics expert: Unrest near Suez Canal may impact supply chain, prices
CARBONDALE, Ill. — Houthi attacks in the Red Sea and threats of war in the Suez Canal area are already being felt around the world and could have major impacts on shipping and global trade. The bottom line is that supply chain disruptions, product shortages or price increases may be the result, said Gregory D. DeYong, a Southern Illinois University Carbondale associate professor of operations management.
He noted that the Suez Canal carries about 12% of all global trade with most of that cargo coming in containers.
“That means it is heavily skewed to consumer products,” he said. “About 30% of the world’s global container traffic uses the Suez Canal with the vast majority of the shipments coming from southeast Asia to Europe. Unfortunately, alternatives for these shipments involve long detours, possibly through equally risky routes.”
Media availability
Gregory D. DeYong, associate professor of operations management at SIU Carbondale, can be reached at gdeyong@siu.edu.
Yemen’s Houthi group has launched attacks on commercial ships at the southern end of the Red Sea in recent weeks, causing several shipping companies to divert vessels, avoiding routes that would take them through Egypt’s Suez Canal, even though the 120-mile canal is the quickest sea route between Asia and Europe. The Houthis say they are supporting the Palestinians as Israel and Hamas wage war.
DeYong said all of the alternative routes are more time-consuming and expensive, including:
- The Northern Sea Route along the north coast of Asia and Europe.
- Over land through Siberia, Russia and Eastern Europe, mainly via rail.
- Using the North American Landbridge across Asia, the U.S. and Europe.
- The Cape Route, going south around the Cape of Good Hope and Cape Agulhas at the southern edge of Africa.
“Of course, all of these options have serious disadvantages,” he said. “The Northern Sea Route is frequently blocked by ice, especially in the dead of winter. Land routes through Russia are threatened by the Ukraine-Russia conflict and are time-consuming and limited in capacity. The North American Landbridge is also time-consuming and depends upon access to very busy United States ports. This really leaves the Cape Route as the predominant option.”
But, that “option” comes at a big cost, he said. Oil prices and war-risk insurance premiums have already spiked.
The usual trip via the Suez Canal takes about 11 days. Add about two more weeks to the timeline to go around Africa.
“That is bad in terms of costs – fuel, shipping and everything will be roughly double. But what is worse is the impact on the global shipping capacity,” DeYong said. “Effectively, this also doubles the shipping capacity required for Asia-Europe shipments, and that would have a major impact on global container capacity, effectively tying up an additional 30% of the global container capacity traffic.”
At this time, he said, there is an excess container capacity of about 10-15% globally, so this hasn’t been an issue yet, but if the instability in the Red Sea and the Suez Canal continues, “the Suez disruption could consume this excess capacity and then some. The bottom line for consumers and businesses is that the low container rates we’ve been experiencing for the past year or so could quickly disappear. Worse yet, if the conflict in the Red Sea area continues or becomes more active, there could be a shortage of container space, leading to shipping delays, shortages and higher prices. Since we live in a global economy, the problems in the Middle East can be felt here as well.”
In addition, a severe drought caused by a strong El Nino climate pattern has seriously threatened the Panama Canal, forcing the Panama Canal Authority to restrict the number of ships which passage through the canal daily from 36 to 24. It will further be reduced to 18 next month. DeYong said that although some of today’s new ships are too large for the Panama Canal, this is still another disruption to the world’s supply chain.
DeYong has personal experience as well as professional knowledge in supply chain management. Before becoming a faculty member, he worked as an import/export manager where he was responsible for about $100 million in products annually. DeYong is currently working to establish a Center for Supply Chain Management and Logistics within SIU’s College of Business and Analytics.