Red Sea Crisis Explodes – What Will Happen to the Coffee Supply Chain?
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Similarly affecting other industries, the coffee supply chain can be affected by many factors. This includes fluctuations in supply and demand, climate change, economic downturns, and social or political unrest, as we have seen constant supply chain churn and price fluctuations through the impact of the COVID-19 pandemic. The consequences of this influence are still being felt. But recently, there has been a crisis in the Red Sea (a small strait located between Africa and Asia). What will happen to the coffee supply chain? Let’s find out with 43 Factory Coffee Roaster!
The Red Sea crisis is becoming increasingly tense
According to a report by The Guardian (UK), a prolonged conflict in the Red Sea and escalating tensions throughout the Middle East are ongoing. The current conflict is in the Red Sea – which divides the coasts of Egypt, Sudan, and Eritrea from those of Saudi Arabia and Yemen. In particular, the United States and its allies carried out airstrikes against Houthi targets in Yemen on January 12, 2024. In response to Israeli attacks in Gaza, the Houthis – a main organization of Yemen’s political and military forces – have begun attacking cargo ships passing through the Red Sea. They have also boarded or hijacked some cargo ships, although so far there have been no reports of serious injuries or deaths.
Analysts say this crisis largely stems from Israel’s ongoing war in Gaza since early October 2023. This is a war with a long and complex history dating back to World War I. It tragically left more than 25,000 Palestinian civilians dead. Efforts have been made by stakeholders to prevent attacks and hijackings of cargo ships, including the formation of the Operation Guardian of Prosperity coalition. But to this day, the conflict is still ongoing.
A protracted conflict in the Red Sea and escalating tensions across the Middle East are in full swing
The Red Sea crisis disrupted global trade
The Red Sea is one of the most important trade routes in the world. Estimates from The Guardian show that about 12% of global trade passes through the Red Sea, including up to 30% of world container traffic. This equates to billions of dollars of goods passing through this route each year. Meanwhile, conflicts seriously affect ships passing through the Red Sea, leading to maritime transport disruptions. Disrupted shipping erodes supply networks and increases the likelihood of inflationary bottlenecks.
Many freight companies avoid the Red Sea and choose to take a detour around the Cape of Good Hope (at the southern tip of Africa). However, this will increase the total shipping time by several weeks. Furthermore, shipping companies that choose to travel through conflict zones also face higher risk premiums.
The World Bank also warned that in the event of an escalation of conflict, energy supplies could also be significantly disrupted, leading to a sudden increase in energy prices. This will have a significant negative impact on commodity prices, adding to economic and geopolitical instability. From there, it can reduce investment and lead to an increasingly serious economic recession.
An estimated 12% of global trade passes through the Red Sea
The coffee supply chain faces the complicated developments of the Red Sea crisis
Most coffee imported and exported worldwide is transported by cargo ships. In particular, the Red Sea is one of the important routes, accounting for the majority of the coffee supply chain. Since the onset of the Red Sea crisis, cargo ships were continuously attacked. This has severely affected Robusta coffee shipping routes connecting East Asian origin countries (such as Vietnam and Indonesia) with destination markets in Europe. Many carriers have had to suspend services or reroute ships from the Bab-el-Mandeb Strait. Some carriers who persisted in providing the service chose other routes and introduced a war risk surcharge.
Betiel Medhanie – East Africa Logistics Director said the route change caused many problems. Shipping times can be delayed by two to three weeks, and container turnover is also slower. If this situation continues, reduced capacity may further inflate both freight rates and surcharges.
The Red Sea crisis caused a series of shipping service providers to cease operations
The Red Sea crisis is a major challenge for all global industries. The coffee supply chain also suffered severe consequences from rising energy and logistics costs and disruption. Prolonged conflict means we will likely have to pay more for our daily cup of coffee. Authorities are still making efforts to intervene to resolve the crisis. But the tense situation may not be resolved within the next few months. Follow 43 Factory Coffee Roaster’s news channel regularly to update industry information!