Houthi threat leads to prolonged shipping journeys and hiked up prices on imported goods
Houthi threat leads to prolonged shipping journeys and hiked up prices on imported goods
The increase in the frequency of Houthi attacks in the last week requires ships transporting goods from East Asia to change their route, and the price per container increases by $500-1,000. According to importers, the change is not yet affecting consumer prices, but if the situation continues it will be felt
Ships carrying goods to Israel such as shoes, clothing, furniture, or electronics used to enter the Red Sea, pass through the Suez Canal, and then dock at the ports of Ashdod and Haifa. Today, due to attacks by the Houthis, they cannot enter the Red Sea and must circumnavigate Africa to reach Israel through the Gibraltar Straits in southern Spain, extending their voyage by 18-20 days. Shipping companies have reported that this detour increases the cost of each container by an average of $500-1,000, considering the prolonged journey and fuel expenses. Moreover, many shipping companies raised insurance prices during the war due to the threat of missiles directed at Israel.
The current cost of shipping a container is around $2,000, with an additional increase of $500-1,000 per container. This significant hike translates to a single-digit percentage increase for each item imported to Israel. This may not sound like a large amount individually, but if the current situation persists, will importers absorb the costs or pass it on to consumers? At this point, discussions about price increases for consumers are not widespread, and some major importers have long-term agreements with shipping companies, so at least until the end of the year they may not be directly affected by container price increases.
Six ships from shipping companies such as Maersk and MSC are currently en route from East Asia to Israel, transporting containers with consumer goods. However, a few days after departing, some of the ships announced that they would not enter the Red Sea and would take a longer detour. Typically, the shipping time for a container from East Asia is three weeks on average. According to Yoram Sebba, the president of the Israel Chamber of Shipping, the threat from the Houthis has doubled the shipping time: "Container ships leave once a week from East Asia to the ports of Haifa and Ashdod, and then continue to other ports worldwide. Now the detour they have to make doubles the time - three additional weeks for each shipment - and this increases the shipping cost for each ship by half a million to a million dollars, depending on its size and value."
In the fashion industry, most items are manufactured in East Asia and imported to Israel. According to Shahar Turgeman, head of the Association of Retail Chains, “the prolonged journey will delay the arrival of products by three weeks, which will affect each item’s price by about 3-5%. We will feel it in our pockets.” Price increases in the fashion industry will not take place immediately because winter goods are already in Israel, and spring and summer goods are expected to arrive in early February. However, if Israel does not resolve the issue created by the Houthis in the Red Sea by then, importers are likely to raise prices for summer items.
In the electronics industry, the impact of the sea detour will result in an additional cost of NIS 10 ($2.7) for a small product and up to NIS 50 ($13.6) for a refrigerator, depending on the product's size. Importers of electronics say that they do not intend to raise prices at this stage, given the rising shipping costs and the declining value of the dollar. The decrease in consumer spending and the reluctance of consumers to spend money will make it challenging for importers to raise prices.
Moshe Memrod, the owner of a company that imports air conditioners from China through shipping company Zim, says that, for now, he is not required to change prices, and he has no intention of increasing the price of air conditioners. He mentions, "We haven't been asked to change prices yet; Zim has not informed us, but it did announce that it is changing the route, and the journey will take longer. In practice, what needs to arrive will be delayed, but we still have inventory." Regarding the consumer price, he says, "I don't think we'll raise prices. If this ends within a month, I don't believe it will lead to price increases. There's no doubt that if it continues for a long time, it will have an impact because shipping companies are incurring more costs, and they will pass it on to importers."
Effie Hamilton, an importer of products from Chinese companies Xiaomi and Meida, also states that he has no intention of raising prices: "The container will be more expensive for me, but the increase is negligible, and at the moment, it will not affect the consumer price."
Yariv Jona, VP of Operations and Supply Chain at Newplan, explains that shipping prices started to rise about two weeks ago. “Regardless of the Houthis, maritime shipping prices tend to rise toward the end of the year and the Chinese New Year in February. Due to the war, there are levies added. The financial impact on electrical products in Israel depends on the product and the agreement that each importer has with the shipping company, and it can reach up to tens of dollars for large electrical products.”
