The impact of the Houthi attacks on merchant ships in the Red Sea on Turkey’s economy is becoming increasingly evident. Increasing difficulties in raw material imports have raised prices in the domestic market, while some export orders have started to be suspended by their buyers abroad.
Exporters, who experienced a delay of more than a month in the import of raw materials and intermediate products due to the chaos in the Red Sea in global trade and whose logistics costs multiplied, were dealt a second blow when orders from abroad were put on hold. On the other hand, these problems pushed up the prices of some products in the domestic market.
In the Red Sea, Iran-backed Houthis have been attacking some ships passing through the Suez Canal since the beginning of December in connection with the Israel-Hamas war. As the ships turned their routes to the Cape of Good Hope, the extended distance caused the container freight to increase 3-4 times in a short time. These developments were soon reflected on Turkey’s foreign trade, with the chemical and automotive supply industries being the first to be affected.
The deliveries of intermediate products and raw materials, which were expected to be made in December, were postponed to the end of January, which was feared to cause disruptions in production. While the Houthis’ continued attacks despite the intervention of US warships raised tensions in the region, the impact of the crisis on Turkey’s foreign trade is also deepening. After import cargoes, export orders are also in trouble.
Basaran Bayrak, Deputy Chairman of the Turkish Exporters Assembly, stated that the cost of Suez transit transportation increased 3-4 times due to the attacks in Yemen and said, “The freight of a container going to the Port of Jeddah in Saudi Arabia increased from USD 700 to USD 4000. The cost of freight at this level is very high, especially for cheap products such as flour. Since the ships entering the Red Sea do not continue and return back, they add the empty return freight to the prices. Currently, 700 containers are waiting in Gaziantep to go to Saudi Arabia.”
RISING FREIGHT DISRUPTS BUYER’S CALCULATIONS
Yuksel Kahraman, Chairman of the International Transportation and Logistics Service Producers Association (UTIKAD) Seaway Working Group, said that some export cargoes have started to be postponed due to the problems in logistics. Speaking to EKONOMİ daily, Yuksel Kahraman said, “When we look at the ship loading volumes, we observe a decrease in export orders, especially from the Gulf countries. The rise in freight also disrupted the calculations of buyers in the region. For the cargo they used to carry for USD 500, now they are being asked for more than USD 4,000. There are also problems with the service. Although the events are taking place in Yemen, there is no direct service coming from Jeddah, Saudi Arabia to Turkey, so the problems are also reflected in the trade with that region. The fact that the freight suddenly increased 3-4 times decreased the export demand for that region.”
PRODUCTS WITH SHORT SHELF LIFE ARE KEPT ON HOLD
Stating that buyers abroad have switched to waiting mode, Kahraman said, “Buyers are observing the market. They want to see whether the freight will return to its previous level.” Pointing out that there is a postponement in orders, especially in the food sector, Kahraman said, “Some companies do not want to send products with a limited shelf life, especially because the distances are getting longer. Kahraman also pointed out that the prolongation of the crisis could cause a new container crisis like the pandemic, and said that the increase in freight on this line could spread to other regions due to the supply-demand imbalance.”
“IMPORTS DISRUPTED, DOMESTIC PRICES UP 9%”
İlker Önel, Chairman of the Board of Directors of the Istanbul Merchants Club Association, stated that they could not get prices from the seller abroad in imports, and that this situation caused prices to increase in the domestic market, and made the following statement. “Especially businesses that use raw materials are having problems in this regard. There is a problem in the import of unprocessed foods. In various pulses products, February-March shipments cannot create prices for companies abroad. Therefore, there is a suspension in import cargo. We see that the rise in freight combined with the increase in commodity prices in the new year will create a serious gap in the market. There has been a price increase in the domestic market for sesame and some pulses. For example, the price of sesame went up from USD 1700 per ton to USD 1850 per ton. This was also reflected in the price of some packaged products such as rice. The main problem here is that the seller abroad does not give a price. If this situation is prolonged, inflation will increase even more in the domestic market.”
Tekirdag’s luxury flour shipments on hold
A Turkish executive of a Chinese logistics company operating in Turkey told EKONOMİ daily that their regular shipment of luxury flour from Tekirdag to South America, New Zealand and South Asia has been put on hold due to the problems in the Red Sea. “Buyers abroad are waiting for the freight to fall. The freight, which rose rapidly in the first days due to low demand, has started to go down by about USD 100 per day because there is no demand,” the official said. On the China-Turkey line, the freight, which was USD 2,000 before the crisis, was up to USD 6,000. Yesterday, some companies lowered it to USD 4.900. I think the figure will go down to USD 4,000 because there is no demand. At the moment, not only the situation in the Red Sea, but everyone has taken their foot off the gas after Christmas. We see it in our business as well. Demand from China and Asia to Europe has slowed down.”
Car deliveries delayed
Bülent Kılıçer, Deputy General Manager of Far Eastern automotive giant Honda in Turkey, said that the developments in the Red Sea would cause delays in the delivery of imported cars: “Due to the change in the route of the ship voyages, the voyage times were extended between 20-25 days. This delay will have no effect on prices, but deliveries will be delayed to some extent.”
“Kamikaze” offer from Far Eastern shipowners to Turkish companies
The exponential increase in container freight on the Far East-Europe route has mobilized Chinese shipowners. According to the information we have obtained, some Far Eastern shipowners are preparing to launch charter voyages to the Eastern Mediterranean and Turkish ports with vessels of 3-5 thousand TEU. These companies, which have also sent e-mails to Turkish companies, offer to transport goods from the Far East to Turkey for less than USD 4,000, while shipowners such as Maersk and CMA CGM carry the goods for USD 5,500. It is stated that these shipowners daring to be “Kamikaze” by passing through the Red Sea despite the Houthi attacks. However, it is foreseen that these companies may take a step back as freight is expected to fall on the Far East-Turkey route due to demand.
“IF THE CRISIS DRAGS ON, SUPPLIES MAY SHIFT TO TURKEY”
On the other hand, sector representatives told EKONOMİ that if the crisis in the Red Sea is prolonged, it could create opportunities for Turkey, just like the pandemic. Last week, some sector representatives made similar statements to our newspaper. It is thought that the doubling of freight on the Far East-Europe trade line and the 40 percent increase in shipment distance may enable some orders to shift to Turkey. It is predicted that European companies may shift supply to nearby geographies, as in the pandemic. However, it is stated that there is no concrete development on this issue yet.
Drewry’s World Container Index continued to rise this week, with global experts stating that spot prices in container transportation have reached the highest level in a year. Like last week, the index rose 9 percent this week, reaching USD 1,661 per 40ft container. The year-to-date average composite index was USD 1,674 per 40-ft container. Freight rates from Shanghai to Rotterdam rose 16 percent to USD 1,667 per 40-ft container, while freight rates from Shanghai to Genoa rose 15 percent to USD 1,956 per 40-ft container. Likewise, freight rates from Shanghai to New York increased by 8 percent. They rose to USD 3,074 per 40-ft container.