PH braces for impact of Red Sea crisis on goods

The ongoing crisis in the Red Sea is disrupting the movement of goods, which is resulting in delays in shipments and higher costs for Philippine businesses.

Ayala Corp. Chairman Jaime Augusto Zobel de Ayala said ongoing geopolitical tensions such as the disruptions in the Red Sea could have cost implications for Philippine businesses.

“I do believe that there will be disruptions. I believe that there will be cost implications. I believe that in the current environment, there will be difficulties that we all face,” Mr. Zobel told reporters on Thursday. “I think right now (the movement of goods and services) is a little bit under fire particularly in the Middle East.”

Tensions in the Red Sea, a major shipping route, have remained elevated as Houthi rebels continue to attack cargo ships and tankers. About 12% of global trade or 30% of overall global container traffic goes through its northern part — the Suez Canal — which brings goods to and from Asia and Europe.

“We can expect delays particularly on our ecozone shipments going to and coming from Europe particularly those countries located in the Mediterranean region given the resulting port congestions with the longer dwell time for containerized cargoes,” Philippine Economic Zone Authority (PEZA) Director-General Tereso O. Panga said in a Viber message to BusinessWorld last week.

The Red Sea crisis may also drive shipping rates higher as vessels use alternative routes between Europe and Asia, Mr. Panga said.

“Shipping lines are rerouting their cargo away from the Suez Canal following militant attacks on vessels in the Red Sea. As an alternative, vessels are doing a detour via Cape of Good Hope in Africa, but this is more expensive for shipments,” he said.

Rerouting ships around the Red Sea could bring costs of up to $1 million for additional fuel per trip between Asia and Northern Europe, Mr. Panga said.

Bianca Pearl R. Sykimte, director of the Department of Trade and Industry Export Marketing Bureau, said the Red Sea crisis has a global impact and the Philippines will not be spared.

“The impact of the issue is global in scale, and we will not be immune to it. About one-third of global container cargo passes through the area and alternative routes are expected to add weeks of additional shipping time and cost,” she said in a Viber message.

Sea-Intelligence, a provider of research and data analysis focusing on shipping and supply chain, said in a press release that the Red Sea crisis will likely result in “uncertainty” on the services from Asia to Europe.

Alan Murphy, chief executive officer of Sea-Intelligence, noted the Red Sea crisis is now considered as “the largest single event” to result in the largest vessel capacity decline in recent years, even surpassing pandemic level.

Data provided by Sea-Intelligence showed that vessel capacity dropped by 60% due to the Red Sea crisis compared to the pandemic levels where it declined by 20-40%.

“The Philippines is not feeling it yet but definitely we have to brace up for its impact,” PEZA’s Mr. Panga said.

He said PEZA is coordinating with affected locators to look for alternative routes and suppliers of imported goods as part of efforts “to de-risk the global supply chain.”

“For the Philippines, initially, the impact will be more muted since it will largely affect trade in and out of Europe. In contrast, trade with the US and Asia especially agriculture products such as rice are likely not yet directly affected,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message on Sunday.

She noted shipping costs are expected to increase eventually as the Red Sea crisis continues.

“This could lead to some pickup in overall international shipping costs, some shipping disruptions especially the Asia-Europe trade (exports and imports) could also have some indirect impact on some global supply chains, thereby could lead to some pickup in prices and overall inflation,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message. — By Ashley Erika O. Jose, with input from Revin Mikhael D. Ochave