After the significant transport delays during the corona crisis, sea transport from Asia is now also experiencing delays due to the crisis situation in the Red Sea and especially in the Suez Canal. One of the impacts of this situation is the extension of delivery times by 10 to 14 days as ships are rerouted via South Africa. FashionUnited spoke to logistics professor Jan Fransoo about the impact on the fashion industry, the differences to the pandemic and possible solutions.
Houthi rebel attacks on merchant ships passing through the Suez Canal began in December 2023. The canal is widely used for transportation from Asia to Europe. “The big shipping companies quickly decided to take a detour, and that now seems to be becoming structural,” explains Fransoo in an interview. The fashion industry is generally prepared for shorter travel times, and the diversion has thrown the supply chain somewhat out of balance.
However, the professor nuances the effect. “In general, there is quite a bit of leeway in the supply chain for clothing that comes from far away. There are stocks there that can absorb this. This also has to do with the seasons and when these products are delivered. It is possible that a particular item will be delayed, with a disruption of between a week and ten days. You can cope with that quite well because the shops won’t suddenly be empty. In the short term, the impact is relatively limited.”
However, the long-term effects are not yet foreseeable. Fransoo argues that if the situation is not resolved soon, the diversion could become permanent. “The costs of this type of transport are increasing. By rerouting, ships use more fuel, more capacity is needed for the entire journey, and the supply and demand system leads to higher prices.”
Problems on the Red Sea: Place orders earlier
For retailers and brands, the delay means they have to order sooner. “If you want to have the goods in time for the new season, you have to order a little earlier,” says Fransoo, pointing out that due to the order cycle in the fashion industry, orders for the coming months are placed much earlier.
The extent to which higher transport costs are passed on to consumers depends on the segment in which a brand operates. “I think this is overrated for many products. If you’re really at the low end of the market, there will be an effect there, but once you get into the middle of the market, there’s only a small impact on the margin.”
Fransoo illustrates his argument with a calculation. “Containers are completely filled with clothing, which is a great value. If you are at the lower end of the market, a container contains around 10,000 to 15,000 euros in value. If my transport costs for a container suddenly increase by 2,000 euros, that is 20 percent of the value contained in the container. That’s a lot.” So if the value of the clothes in the container is higher, the impact is also lower for medium or high-end brands.
Is escaping by air transport, train or truck a good alternative for those who cannot afford the cost? “The prices for air freight are quite high at the moment. I think this is definitely possible for very specific products that really need to arrive on time. But on a large scale? I doubt that.” Fransoo also points out that the situation is very different from the delays during the pandemic. “Back then, lead times suddenly became months longer; now we’re talking about eight to ten days. Most supply chains can handle this.”
So by train? “This is an alternative that existed in the past. The train traveled from Asia via Russia to Europe. Because of the war in Ukraine and trade restrictions with Russia, this transport has now become more expensive. Technically it is still possible, but it has become more difficult. So the train isn’t necessarily a good alternative at the moment.”
Traffic disruptions due to the Red Sea attacks: Southern Europe most affected
The impact of the Red Sea problems is being felt in many areas, but southern Europe has been hit harder, said Fransoo. “The ships that came through the Suez Canal, for example, passed Genoa in Italy and stopped there. Now that the ships are being rerouted via South Africa, they will no longer sail past Italy or other ports in the Mediterranean. The southern European countries are now dependent on supplies via the ports of Antwerp, Hamburg or Rotterdam. This increases the overall cost of transport significantly, as transport from these ports to southern Europe must be carried out overland. Land transport is much more expensive than sea transport”.
Fransoo therefore sees little point in the measures proposed by the Italian industry association Confcommercio. He calls for the emissions trading system to be suspended and traffic restrictions at the Brenner Pass in the Alps to be lifted. “I think lifting the restrictions on the Brenner Pass is a cheap argument. Trains run daily between Rotterdam and Milan, so a container can be loaded onto the train without any problems. In addition, trains have more capacity than trucks.” Fransoo also advises against suspending the emissions trading system. “I think the apparel industry has a great need for a sustainable supply chain. If you start suspending the trading system, it will further slow down the whole movement towards greater sustainability.”
Be prepared for disruptions in the chain: Consider alternative production locations
However, if there is a ceasefire with the Houthi rebels and the attacks on the Red Sea stop, the traffic disruptions will not stop, the professor warns. “What we don’t talk about much in Europe is the problem in the Panama Canal. The water level there is too low due to a lack of rainfall. Therefore, ships traveling from Asia to the East Coast of the United States now also have to make a detour.” This change in shipping routes also affects transportation costs. The problem in the Panama Canal has been going on for at least six months.
In the short term, it is advisable to place orders earlier, which many fashion brands seemed to have already understood during the trade fair season in January and February. But in the long term? Fransoo then recommends checking the structure of the production and the entire supply chain. “This may mean that you decide to also examine alternative production locations. For example, part of the European market has already shifted to North Africa and Turkey. I think this development is accelerating.” According to the expert, it is not necessary to relocate all production, but it is good to create options.
“Globally, uncertainty and potential disruption will only increase. That’s why you as a company have to be prepared. This means you must have alternatives in your supply chain at all times. Setting this up based solely on the lowest production costs is no longer feasible in the long term. So prepare for a new normal where disruptions can occur in all sorts of places.”
This article originally appeared on FashionUnited.nl. Translated and edited by Simone Preuss.