Turmoil in the Red Sea: 4 components that should be part of every shipper’s contingency plan

The ocean market is facing additional turmoil as 2023 enters the home stretch. Drone and Houthi rebel attacks have forced many shippers to bypass the Red Sea and the Suez Canal. This most recent disruption is a stark reminder that where there are geopolitical, economic, or weather-related flareups, shipping is almost inevitably affected. 

The situation in the Red Sea impacts key stakeholders differently:

• Shippers (Owners of Cargo): the situation is a clear headache for global shippers both from a cost and service perspective. Higher carrier costs will pressure shipment costs, while sailing re-routes will add transit time.
• Carriers (Provider of Service): generally, the situation represents a financial opportunity. While everyone undoubtedly desires safe and stable conditions, disruption is generally good for global carriers. Despite higher operating costs, providers may leverage the situation to levy additional surcharges. Additionally, capacity removal caused by the disruption may push rates upward.

At the time of writing, a U.S.-led coalition of about 10 countries has increased its presence at the Red Sea. If the situation works itself out relatively quickly, this could simply be a high-profile blip on the radar instead of having a lasting impact. 

Building and Implementing a Contingency Plan

On the heels of the Suez Canal crisis, the Red Sea turmoil is another stark reminder of the increasing importance supply chain resilience plays in today’s business. Below are a few tangible recommendations to help companies craft a well-rounded contingency plan:

1. Create Systemic Alternatives: shippers should establish routing variants along different trade lane corridors within their ERP or TMS systems. This will allow companies to quickly and seamlessly switch to viable alternatives in the event of disruption.
2. Establish Visibility: ensure the organization has a simple, available method to quickly track international shipments. Easily accessible, accurate data is a critical enabler to decision making.
3. Prioritize Freight: establish a system to prioritize freight internally prior to a disruption event. This allows shippers to make quick decisions before alternative options disappear without needing to gain alignment from cross-functional stakeholders.
4. Build & Leverage Relationships: the shipping industry is built on shipper/carrier relationships. Investing in these now, either through flexibility or concessions, may pay dividends later when capacity constraints force providers to allocate freight.

Following years of impacts from COVID-19, having a robust contingency plan is now table stakes for global shippers. Doing this strategically, and with intention, will drive enhanced resiliency for your supply chain.