Red Sea Crisis

Red Sea Crisis: A Catalyst for Reinventing Global Supply Chains
Vulnerable Passage: The Red Sea, crucial for 12% of global trade, faces instability due to
bordering nations and recent events like the Yemeni Civil War.
Impact of Disruption: Blockage would significantly impact consumer goods and

manufacturing, causing price hikes and potentially crippling reliant companies. Alternate
routes like Cape of Good Hope exist, but increase costs and emissions.
Challenges: Geopolitical tensions and lack of transparent data on specific cargo flows pose
challenges for comprehensive solutions.
Reimagining Trade: While maritime trade remains key, companies must:
 Assess Risks: Continuously monitor the Red Sea situation and use AI/ML to predict
potential disruptions.
 On-shoring: Invest in local production, especially for high-risk materials.
 Inventory Management: Improve inventory management and increase holding

capacity based on specific goods.
 Supplier Diversification: Explore alternative trade routes and diversify suppliers.
Opportunity for Reinvention: The crisis presents an opportunity to:
 Optimize Maritime Trade: Focus on improving existing maritime infrastructure and

efficiency.
 Supply Chain Transparency: Increase transparency within supply chains for better risk
management.
 Collaboration: Encourage collaboration among stakeholders for joint solutions and

risk mitigation strategies.
The Suez Canal has always been a contentious region right from its inception in the
1850’s.The canal was built as a joint venture between the Ottaman Empire and the French
and it took 10 years to build and a lot of lives were lost building it.
The Suez Canal connects Europe to Asia , the Mediterranean Seas to the Red sea which opens
up into the Indian Ocean.The Red sea is bounded on either side by a number of hostile
countries with volatile governments who have a knack of leveraging the fact that the Suez
canal acts as a Choke point for Global Trade.12% of Global Trade including 30% of
Container cargo flows through the Suez Canal.The countries bordering the Red Sea are
Egypt(which owns the Suez Canal and hence is not involved in trade disruption in the Red
Sea) , Sudan , Somalia , Yemen , Saudi Arabia , Jordan , Djibouti and Eritrea.Of these
countries Egypt and Saudi Arabia due to their vested interests in global trade want no such
disruption.Jordan has largely been a mute spectator.Sudan and Somalia are known for Piracy
of their coasts where large container and oil tankers are held hostage by armed pirates who
demand ransom from sovereign states and the shipping companies.Yemen has always been a
volatile state with an unstable government and most recently the Houthi rebels gained control
of the country as a result of the still ongoing Yemeni Civil War (which started in 2014).
As we can see , the Red sea is of strategic importance to many countries some of whom
depend on it for trade and others that leverage it for political reasons.Due to this reason there
is a need to come up with an alternative to the Red Sea route or at the very least thoroughly
analyse this Trade Route.
Examining the Implications:
From data in the SCA(Suez Canal Authority) , around 25% of the net tonnage of maritime
traffic that transits the Suez canal is Oil and Oil Products and 70% is Container Cargo.The
rest 5% is others(Chemicals , Fertilizers , Coal etc).Container Cargo refers to goods shipped
in standardised Containers.This is mostly finished , consumer goods or intermediated goods
that will be used for further processing into finished goods.They play a major in the supply
chain of most of the multi national companies that now have a global supply chain to reduce
product cost.However this results in added risk in the form of natural/climatic risk(cyclone
etc in the sea) , country risk(change in country policies) etc.A blockage of the Red Sea will
have a significant impact on the global supply chains resulting in an increase in the price of
goods across sectors.Most impacted would be the retail and manufacturing sectors since
container traffic accounts for the bulk of trade across the Red Sea.The increase in price of
goods also would not be uniform across industries or even across companies in the same
industry.Companies with an alternative way of procuring materials other than the Red Sea
route would have an obvious upper hand.This asymmetric price change can open up a lot of
opportunities for the enterprising companies and may spell the doom for others.Depending on
the severity and duration of the blockage companies and countries will start looking for other
alternative routes for maritime transport.
One obvious and straight forward change in route would be to shift to the Cape of Good
Hope route which however would add 9000kms to the distance travelled and hence increase
the environmental impact due to increased emissions and also would increase shipping costs
which would be passed on to the consumers.
Identifying Vulnerabilities and Challenges:
Geo political tensions in the Red Sea region which is surrounded by a host of countries with
unstable governments is one of the major vulnerabilities of this trade route.
The other major challenge is to create a general solution for trade that flows through it as a
whole.Since specific data on the cargo that flows through it is confidential resulting in the
opaqueness of Global Supply chains , we cannot create a one cure it all solution .We only
have a Macro view of the cargo that flows through the Red Sea.Individual companies are
better positioned to alter their supply chains depending on market scenarios to optimize their
costs and maximize profits.
Proposed Solutions :
Maritime is and will continue to be the major driver behind global trade due to sheer volume
of goods that can be transported inter continentally at minimal costs.Due to this reason I
propose to optimise the Maritime trade rather than supplement it using other transport
methods.
Companies that have a heavy reliance on the Suez Canal trade route must thoroughly assess
their risks and continually track the situation in the Red Sea.They must utilise technologies
such as AI/ML and Data Analysis to better predict demand or at the very least unearth highly
anamolous demand / supply behaviour before hand.They must invest in on shore production
capabilities especially for those materials that are at a high risk.There is a need for better
inventory management and increase in inventory holding capabilities depending on the
good.Also companies must work on diversification of suppliers through alternative trade
routes.

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Red Sea Crisis: A Catalyst for Reinventing Global Supply Chains

Impact of Disruption: Blockage would significantly impact consumer goods and

Reimagining Trade: While maritime trade remains key, companies must:

 On-shoring: Invest in local production, especially for high-risk materials.

 Inventory Management: Improve inventory management and increase holding

 Supplier Diversification: Explore alternative trade routes and diversify suppliers.

Opportunity for Reinvention: The crisis presents an opportunity to:

 Optimize Maritime Trade: Focus on improving existing maritime infrastructure and

 Collaboration: Encourage collaboration among stakeholders for joint solutions and

Examining the Implications:

Identifying Vulnerabilities and Challenges:

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