The ongoing conflict in the Red Sea has unexpectedly impacted the white goods sector which includes large home appliances like stoves, refrigerators, freezers, air conditioners, washing machines and dishwashers. The ongoing Israel-Iran conflict has escalated leading into acute shortage of shipping containers. This has further driven sea freight costs from China due to which the consumers will probably need to pay more for large gadgets, IT hardware, television sets, including others that are exported to other countries through the sea route. Logistics costs quadrupled Industry experts report that logistics costs for large-sized components shipped by sea have quadrupled over the past two months. Harish Kohli, country head of Acer, explained that approximately 330 large ships, each carrying around 11,000-12,000 containers, are now taking a significantly longer route, an additional 8,500 km, to avoid the conflict zones in the Red Sea, bypassing the Suez Canal. This detour has caused a sudden shortage of containers at Chinese ports since early May.Potential price increases for consumersKohli further highlighted that logistics costs typically account for 2-3% of the overall manufacturing costs of large electronics, and these increased costs might be passed on to consumers if the situation persists.Global container rates surgeSunil Vaswani, executive director of the Container Shipping Lines Association, highlighted that transit times have surged by 35-40%, reducing available vessel capacity for loading at ports. This increase in transit time and container shortages has led to a global rise in container rates. In India, the demand for 20 feet containers for exports is particularly high, forcing shipping lines to prioritize these imports.Contract cancellations and spot ratesThe shortage and increased costs have led to contract cancellations, with liners invoking force majeure clauses that is a contract provision that relives both the parties from liability for catastrophic, unforeseen events that prevents participationfrom fulfilling obligations, pushing manufacturers to resort to more expensive spot rates. Despite these challenges, Vaswani mentioned that Indian export rates have stabilized or softened post the financial year closure, due to additional shipping capacities deployed.Why Red sea has been affectedThe Red Sea is the focal point of the threat, as Iranian-backed Houthi rebels headquartered in Yemen have been assaulting freighters that may or may not have ties to Israel. In order to uphold the foundational principle of freedom of navigation, the US has assembled a multinational naval coalition and pledged protection to ships passing through the area. However, in order to prevent an escalation, President Joe Biden has stated that he wants to avoid a direct military conflict with the Houthis.
