Just as the commercial world was coming out of a pandemic, which turned global trade into total chaos, the first European war since WW2 wreaked even more havoc on the availability and price of a wide range of goods. This is all too recent and painful history for procurement departments in the UK. Now, international and domestic supply chains are under pressure once again.

Shippers are facing a whole host of challenges, ranging from the rapidly escalating crisis in the Middle East to drought in Central America and through to strike action in the US, while there is the renewed threat of trade wars and tariff-driven protectionism. UK businesses are finding it both more difficult and more expensive to source and move supplies.

The Middle East crisis

At the top of the list of challenges is the situation in the Middle East and its impact on the movement of trade through the Red Sea. Traffic has plummeted by two-thirds through this key shipping route since attacks on vessels by Houthi rebels began in 2023. Before this, the route accounted for 12% of all global trade.

Many shipping companies have all but abandoned the route, instead opting to move their vessels around the Cape of Good Hope, which can add ten days to journeys and significant extra costs. The fresh flare-up of tensions between Israel and Iran has raised fears that even more ships may shun the Red Sea route, although most shipping has already done so. A large-scale return of container ships to this vital route seems to be a distant prospect.

Panama Canal restrictions

Traffic through the Panama Canal has also dropped following a drought, which forced its operator to reduce the cap earlier this year on the number of ships that could travel through it from thirty-six a day to only twenty.

US ports disputes

Fears of trade disruption have been further exacerbated by the port workers’ strikes in the US.  Nearly 50,000 members of the International Longshoremen’s Association went on strike indefinitely at the beginning of October, affecting fourteen ports across the east coast of the US.  This has added to the existing issues caused by the collapse of the bridge at the entrance to Baltimore harbour in March 2024 after it was struck by a container ship.

Trade wars

Trade conflict has cut US GDP by an estimated 0.2%-0.4% and raised prices by 0.1%-0.3% over the past five years, according to a report by Oxford Economics. By some measures, it may have cut imports from China into the US by 35%-40%.

The Republican Nominee for the imminent US Election is threatening to increase tariffs on Chinese imports from 10% to 60% across the board, while the Chinese authorities are rushing to improve flagging economic growth by protective measures, which could include retaliatory trade restrictions. The impact on world trade could be huge.

How damaging is this for supply chains so far?

The biggest impact of the disruptions has been on the cost for businesses to transport goods. Freight companies opting for the Cape of Good Hope route face an added 40% in fuel costs, while container prices have also risen.

According to the shipping analytics platform Xeneta, the spot rate for a 40ft shipping container between East Asia and Northern Europe was $8,587 when the market peaked in July 2024. This is more than four and a half times higher than in December 2023, before the Houthi attacks started.

The US port strikes have already pushed up container prices from northern Europe to the east coast of America. An average 40ft container cost $2,861 in early October 2024, compared with $1,836 at the end of August 2024.

The disruption has also led to longer lead times for companies. The diversion around Africa to avoid the Red Sea had added four weeks to delivery times. Carmakers such as Volvo and Tesla have had to suspend production lines because of a lack of parts as a result of the disruption, while retailers in the UK, including DFS and JD Sports, have said the Red Sea crisis has hit sales.

Why does this matter for the UK economy?

Manufacturing may no longer dominate the economy, but it is very far from insignificant. An extraordinarily detailed analysis carried out recently by the Bank of England shows that intermediate inputs (goods obtained via a supply chain) make up over 50% of total costs for all but three of the UK manufacturing subsectors. This figure reflects not just direct procurement risk but also indirect supply chain exposure via businesses within the primary supply chain.

On this basis, the potential financial damage from rising costs and supply chain disruption for manufacturers and for the retailers who sell on their goods to consumers and other end users is obvious and deeply concerning at a time when the UK economy has slipped back into a ‘no growth’ phase after a slightly more optimistic first half of 2024.

De-risking supply chains by shortening them through ‘onshoring’ procurement is all very well as a strategy. Unfortunately, its success may be limited by the reality that many domestic suppliers would also be impacted to some extent by geopolitical issues or else by capacity problems caused by endemic UK labour and skills shortages, as well as poor productivity after decades of unsatisfactory levels of business investment.

If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.