Red Sea disruptions may drive port congestion, inflation

Source: Supply Chain Dive
Date: 2nd February 2024

Risks to the U.S. economy grow as the crisis prolongs, experts told a House committee.

The U.S. economy may be at risk due to the Red Sea disruptions, stakeholders warned regulators during a hearing.

The House of Representatives Coast Guard and Maritime Transportation subcommittee held a hearing to evaluate the emerging challenges posed by ongoing attacks on commercial shipping along the Red Sea. Shipping experts warned of possible congestion and higher inflation if the situation prolongs.

The Red Sea vessel attacks from Houthi rebels have already caused a ripple effect on supply chains. As carriers have rerouted several vessel services, transit times and ocean shipping rates have gone up significantly. In turn, some shippers like Ikea have already reported delays and constraints for certain products.

“We saw firsthand during the pandemic what a significant supply chain crisis can do to the global economy and we must not let it happen again,” a Republican from Florida and the committee’s chairman said during his opening remarks.

Congestion at the ports, again?
The situation along the Red Sea is pushing shippers to bring back cargo through the West Coast which was lost during the port labor negotiations.

″NRF members have decided to bring cargo into the West Coast ports and then use intermodal rail to get the cargo back to the East Coast where it was intended,” the National Retail Federation’s VP of supply chain and customs policy told regulators.

The NRF is already hearing that rail dwell times are starting to tick up and that rail car imbalances combined with increased demand could later lead to even greater congestion and dwell. Harkening back to the pandemic-era congestion which is also called regulators’ attention to some of the other root causes behind port inefficiencies at the time.

“We need to make sure there is chassis availability as well,” the National Retail Federation’s VP of supply chain and customs policy said. “One of the biggest drivers of congestion during the pandemic was the lack of available chassis.”

However, the MSC’s EVP of maritime policy and government affairs cautioned regulators any issues caused by the Red Sea disruptions may look different than those seen during the pandemic-era port congestion.

“You can’t look at one particular port or one particular service loop,” MSC said. “You have to look at how it fits with the broader system, particularly where it intersects with ports and interfaces with the shoreside component of what it takes to keep supply chains moving.”

While during the pandemic, congestion was due to U.S. land-based logistics being overwhelmed, MSC said the current situation is based more on changes to maritime schedules and service rotations.

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