Post-Red Sea: Major demand drop in Asia-Europe
When the Red Sea crisis emerged and vessels began sailing around Africa, the Asia-Europe supply chain became 7-14 days longer, depending on port-pair configurations. When supply chains become longer, it effectively also means that most shippers increase their inventories by that amount, as the cargo on the vessels is de facto an inventory, explains the latest analysis by Sea-Intelligence.
It elaborates:
“In 2024, demand on Asia-Europe grew by 8.5%. However, when accounting for the transit times, and hence inventory increase of 7-14 days, Asia-Europe growth drops to 4.5%-6.5% (depending on the lengthening of the supply chain between 7-14 days). This means, that the Asia-Europe trade saw a demand growth boost of 2-4 percentage points (PP) purely due to the increased transit times. If we reasonably average the supply chain lengthening to 10 days, then the demand growth boost on Asia-Europe equates to 2.9 PP.
“When vessels revert to the Suez routing, supply chain will contract by the same amount as it expanded in 2024. The excess inventory held in the longer supply chain will be released, and, for a temporary period, importers will curb ordering to mitigate this sudden excess inventory. Of course, the effect on an annual basis is symmetrical, hence in the year following an opening of the Suez Canal, we should expect a negative -2.9 PP impact on the Asia-Europe demand growth. However, the contraction of the supply chain is likely to play out over a much shorter timeframe than a full year, potentially increasing its severity.
“We do not know how quick this process will be and have therefore modelled a range of scenarios ranging from 2 weeks (unrealistically fast) to 12 weeks. This is shown in Figure 1. In the case of the unrealistic 2-week contraction, we see how the volume drops by 70 percentage points Y/Y – an event even more extreme than the usual lull after Chinese New Year. Even at a 12-week transition period, this still leads to a reduction in Asia-Europe Y/Y growth by more than 10 percentage points over the full 12 weeks.”
Source: Exim News Service: Copenhagen, Feb. 20