Speaker 1: Earlier today, the Secretary of State announced the designation of
Speaker 1: the Huthis as a specially designated Global terrorist effective February sixteenth,
Speaker 1: for threatening the security of the United States. These attacks
Speaker 1: against international shipping have endangered mariners and disrupted the free
Speaker 1: flow of commerce and freedom of navigation for the past
Speaker 1: several weeks. The United States, with allies and partners around
Speaker 1: the world, has made clear that there must be consequences
Speaker 1: for those attacks.
Speaker 2: As the fighting between Israel and Hamas rages on, the
Speaker 2: effects of the conflict are starting to spill over into
Speaker 2: the rest of the region. In response to the ongoing war,
Speaker 2: the Huthis, a Yemeni militant group, began firing rockets and
Speaker 2: conducting drone strikes against Israel on October nineteenth. Soon after,
Speaker 2: the Uthis employed an additional tactic, attacking commercial shipping vessels
Speaker 2: in the Red Sea on the way to and from
Speaker 2: the Suez Canal, a crucial artery for global trade that
Speaker 2: connects Asia with Europe. Israeli allies, including the US and UK,
Speaker 2: have since responded with airstrikes of their own to try
Speaker 2: and deter these attacks, but freight companies are already wary.
Speaker 2: They've largely redirected their ships to take alternate routes that
Speaker 2: are significantly longer today on the show, what these disruptions
Speaker 2: mean for the global economy now and in the long run,
Speaker 2: and what companies are doing to secure their supply chain.
Speaker 2: From Bloomberg News, this is the big take. I'm Sarah Holder.
Speaker 2: International shipping has faced some complications in recent years, none
Speaker 2: more damaging than the COVID pandemic.
Speaker 3: Supply chains were squeezed during the pandemic to extraordinary levels,
Speaker 3: but in twenty twenty three, costs of shipping came down
Speaker 3: dramatically and goods flowed smoothly around the world and broadly speaking,
Speaker 3: supply lines were functioning.
Speaker 2: And the current writes about the global economy for Bloomberg News.
Speaker 3: Well, if you thought all the problems were ironed out,
Speaker 3: what's happening in the Red Sea is a very blunt
Speaker 3: reminder that those problems haven't gone away at all.
Speaker 2: And this spoke with our producer Alex Sagira about the
Speaker 2: ongoing situation in the Red Sea.
Speaker 4: Then you take us through what this disruption actually looks like.
Speaker 4: For instance, where do these ships go instead of through
Speaker 4: the Red Sea?
Speaker 3: So the practicalities of This is that these ships get
Speaker 3: loaded up with say, merchandise goods right around East Asia
Speaker 3: and they sail through the Red Sea on the way
Speaker 3: to the Suez Canal, primarily for the European market, but
Speaker 3: not only for the European market. It also serves America
Speaker 3: from that side of the world. But what's happening now,
Speaker 3: of course, is due to the conflict in the Red Sea,
Speaker 3: that's more or less cutting off the Suez Canal for
Speaker 3: a lot of international shippers, and instead they're going right
Speaker 3: around the bottom of the South of Africa, around the
Speaker 3: Cape of Good Hope and heading up the Long Way.
Speaker 2: And the numbers are pretty staggering.
Speaker 3: The International Monetary Fund has run some numbers and they
Speaker 3: estimate that transit volume through the Suez Canal is down
Speaker 3: by around thirty seven percent up to about mid January
Speaker 3: compared with a year earlier. And then the correlation of
Speaker 3: that is that volumes going around the Cape of Good
Speaker 3: Hope have surged by around fifty four percent.
Speaker 4: What are analysts telling you about the long term or
Speaker 4: even medium term impacts of these attacks.
Speaker 3: So there's a kind of a benign take on all
Speaker 3: of this. The beninn take is, look this conflict will
Speaker 3: de escalate, it's happened before, and ultimately security will be
Speaker 3: restored and these ships can return to the Red Sea
Speaker 3: and in the Swez Canal, And even if it's not for
Speaker 3: the moment, there are alternatives around the South of Africa,
Speaker 3: and of course there's plenty of freight options out there.
Speaker 3: That's the kind of hopeful take. But those same people
Speaker 3: will also say to you, the longer this drags on,
Speaker 3: the more worrying it will become.
Speaker 2: Those concerns are centered on rising costs for manufacturers, freight
Speaker 2: end consumers.
Speaker 3: There's a dual impact on the world economy here. On
Speaker 3: the one hand, you have the extra shipping costs and
Speaker 3: the extra freight costs associated with this conflict in the
Speaker 3: Red Sea is sparking worries that ultimately this might mean
Speaker 3: higher prices for consumers, which of course means faster inflation
Speaker 3: at a time when the world is hoping inflation is
Speaker 3: slowing down.
Speaker 2: It isn't just the price of consumer goods that will
Speaker 2: rise from these disruptions. The Seuez Canal is also how
Speaker 2: Europe gets its oil.
Speaker 3: There's also though, the impact on energy costs because if
Speaker 3: its conflict continues, if it deepens if it broadens out
Speaker 3: in the rest of the region. The concern is there,
Speaker 3: of course, is two things. A energy won't be able
Speaker 3: to be shipped through that part of the world, and
Speaker 3: again it's a crucial artery for a energy and b
Speaker 3: the cost of oil could go higher.
Speaker 2: In his reporting, and just spoke not just with analysts
Speaker 2: and economists, but also with business owners who are already
Speaker 2: scrambling to solve these supply chain issues.
Speaker 3: One of those I spoke to was Hans vand and Elsen.
Speaker 3: He runs an Arizona based company called Yoyo Factory. They
Speaker 3: make their yoyos in Shenzen, and they make it for
Speaker 3: markets that include the US, Canada, and Mexico, across Europe
Speaker 3: and Japan. So he's on both sides of this. He's
Speaker 3: getting his goods across the specific to America, okay, but
Speaker 3: he also has to get his goods from Shenzen to Europe,
Speaker 3: and that's where he's getting a little bit worried about
Speaker 3: how this conflict does play out. You know, if it's
Speaker 3: a near term we'll say de escalation, then he's not
Speaker 3: too concerned about the overall hit to his business, the
Speaker 3: overall hit to his costs he'll get his yoyos to
Speaker 3: Europe and time. But the longer this drags on, the
Speaker 3: more worry he's getting. And that's why he's talking about,
Speaker 3: you know, the time for him to build up his
Speaker 3: inventory of stocks to make sure he doesn't run low.
Speaker 3: He's keeping an eye on the costs of all of
Speaker 3: this and how much of it he can pass on
Speaker 3: to his customers, and of course he's looking for alternatives.
Speaker 3: One possible idea he spoke about was he could ship
Speaker 3: his produce from Shenzen over to the US and from
Speaker 3: when you asked, across to Europe. That gets the product there,
Speaker 3: but that will be extra cost.
Speaker 2: Those analysts, business owners and even governments are trying to
Speaker 2: adapt in real time, but it's hard to anticipate how
Speaker 2: the conflict will unfold after the break. What are the
Speaker 2: prospects for de escalation in the Red Sea and what
Speaker 2: can companies do to make their supply chains safer against shocks.
Speaker 2: We're back earlier. Our colleague Enda was describing the hope
Speaker 2: that these Red Sea attacks could cease sooner rather than later.
Speaker 2: But I wanted to talk with Bloomberg's Mohammed Hattem, who
Speaker 2: reports on economics and politics in Yemen. For some background
Speaker 2: on the huthis, what's happening on the ground in the
Speaker 2: country and the chances in the short term for de escalation.
Speaker 2: We spoke earlier via zoom. Have you spoken with any
Speaker 2: Houthi representatives who've shared more about their strategy.
Speaker 5: I talked to one of their leaders, Muhammad aal Buffetti,
Speaker 5: and he was telling me that they will not stop,
Speaker 5: you know, these kind of attacks until you know the
Speaker 5: end of Israeli offensive, because he said, this is a
Speaker 5: good opportunity for them to show. Also there might and
Speaker 5: strange region wise and maybe across the globe.
Speaker 2: That global influence is underscored by the amount of international
Speaker 2: trade being disrupted by their attacks on vessels in the
Speaker 2: Red Sea. According to Flexport, a digital logistics platform, over
Speaker 2: five hundred container ships have already been rerouted away from
Speaker 2: the seas canal, which is about a quarter of the
Speaker 2: world shipping capacity. What are you hearing from people on
Speaker 2: the ground in Yemen.
Speaker 5: Yemen has been under a sort of brutal, you know,
Speaker 5: conflict that has been dragging four years. It has created
Speaker 5: a massive suffering, It has created the very dire humanitarian
Speaker 5: situation and the UN describe it as the world's wars
Speaker 5: humanitarian crisis. Now they are into another conflict and we
Speaker 5: don't know for how long it's going to take and
Speaker 5: how it will turn. So there is a sort of uncertainty,
Speaker 5: a sort of concern, a sort of worry about the situation.
Speaker 2: US and UK air strikes have targeted Houthi weapons caches
Speaker 2: in hopes of sending a message that these attacks will
Speaker 2: have serious consequences, but the Huthis have kept attacking anyway.
Speaker 2: I asked Mohammed, when all this fighting could end, what
Speaker 2: are the prospects for de escalation in the Red Sea.
Speaker 5: The hohoth Is on their side, they are not detered,
Speaker 5: you know, by any attacks by strikes, by the warning
Speaker 5: by the UN Security Council resolution, and they are determined
Speaker 5: to continue these attacks on the ships. They said, these
Speaker 5: ships are bound to Israel and we will try to
Speaker 5: stop them. But the Americans and the international community consider
Speaker 5: what the Houthis are doing. It's not an attack on
Speaker 5: the Israeli ships, but attack on the international trade because
Speaker 5: they have touched the nerves of the economy of the
Speaker 5: international community. And I think the International Committee has responded
Speaker 5: to this, and the response has been also gradually you
Speaker 5: know it's not. But with this determination of the houses
Speaker 5: to continue and they're firing attacks, and now they are attacking,
Speaker 5: we will see more and more exclation. And I think
Speaker 5: maybe the Americans they will escalate along with their allies
Speaker 5: further in the future, and then maybe it will develop
Speaker 5: into a sort of killing maybe healthy leaders, massive operations
Speaker 5: or massive strikes, and I think we are likely to
Speaker 5: see a long term conflict that is not going to
Speaker 5: end soon.
Speaker 2: Companies caught in the crossfire are pondering ways to harden
Speaker 2: their manufacturing infrastructure.
Speaker 3: Here's and again, industry executors say, this just puts another
Speaker 3: focus in the whole story of near shoring, friend shoring, relocating,
Speaker 3: diversifying your industrial manufacturing base, making sure you are not
Speaker 3: vulnerable assumaty supplied choke points around the world, be it war,
Speaker 3: be it disease, be it climate.
Speaker 2: At the core of these strategies is a focus on
Speaker 2: how to streamline production and avoid middleman. Brandon Daniels, CEO
Speaker 2: of logistics firm Exeger, recently spoke on Bloomberg TV about
Speaker 2: this and.
Speaker 6: Then that means investing in innovative ways to diversify your
Speaker 6: supply chains. Across maybe different materials or different suppliers, so
Speaker 6: that you have control over those supply and shipping lines.
Speaker 2: Who The attacks on commercial vessels in the Red Sea
Speaker 2: are rearranging the ways the world can continue to effectively
Speaker 2: do commerce, and with the conflict showing no signs of
Speaker 2: stopping soon, companies are thinking critically about how to insulate
Speaker 2: their supply chain from the dangers of today's international waters.
Speaker 2: Thanks for listening to the Big Take from Bloomberg News.
Speaker 2: I'm Sarah Holder. This episode was produced by Alex Suguia.
Speaker 2: It was edited by Ben Holland and Naomi Shaven. It
Speaker 2: was mixed by Blake Maples. Our senior producers are Naomi
Speaker 2: Shaven and Jilda Di Carley. We get editorial direction from
Speaker 2: Elizabeth Ponso. Sage Bauman is our executive producer and head
Speaker 2: of podcasts. Thanks for tuning in. We'll be back tomorrow.