What business leaders are saying about the Red Sea attacks

Recent attacks on commercial ships in the Red Sea by the Iran-backed Houthi militia have forced companies to pay higher insurance rates or divert goods to Africa, incurring costs and delays that could put a dent in companies' profit margins and can ultimately increase companies' profit margins. prices for consumers.

Many executives whose companies move goods through the Red Sea and Suez Canal have said the impact has been limited so far, partly because of lessons learned from the more severe, global supply chain disruptions during the worst of the Covid pandemic.

“In the future, disruption will hit companies,” said David Simchi-Levi, a professor at the Massachusetts Institute of Technology. “Today it is the Red Sea, tomorrow it will be something else.”

The attacks in the Red Sea, which handles about 12 percent of global trade, have forced companies to make difficult decisions. If you go through the Red Sea, you risk an air raid and pay more for insurance. Avoiding the route will cause costly delays.

Maritime prices have soared since mid-December, more than tripling on the Asia-Europe route and more than doubling between Asia and the east coast of the United States. according to analysis agency Xeneta.

For the time being, analysts expect that the impact on consumers will remain limited. Shipping costs are a small portion of a product's total cost, Goldman Sachs analysts noted. They estimate that the disruptions will add only a tenth of a percentage point to global inflation this year.

Still, it's a concern for analysts and investors, who have raised questions about earnings calls with company executives. Here's what business leaders have said.

European companies will be the first to feel it.

The Red Sea is a particularly important route for companies transporting goods from Asia to Europe. These goods now cost more to ship and take longer to arrive.

It could also affect production in the region. The disruptions caused Tesla and Volvo to halt production in Europe. Automakers rely on just-in-time production, where parts arrive at the assembly line shortly before they are needed, leaving little room for shipping delays.

Doctor Martens

The CEO of the British shoemaker, Kenny Wilson, said this that it faced major delays in Europe but felt virtually no impact in Asia or the United States. Businesses in Britain were the worst hit by shipping delays in January. according to S&P Global.

“There are obviously costs associated with that,” Mr. Wilson told analysts during a Jan. 24 earnings call. “And then I think it's really more about what the impact would be next year if this were to continue.”

Bang & Olufsen

Nikolaj Wendelboe, chief financial officer of the Danish audio equipment company, told analysts on a Jan. 10 call that the company is shifting some of its shipping to air or rail.

“There will be a slight increase in costs and some longer lead times, but it is nothing compared to what we have seen during the Covid crisis, at least not what we are seeing at the moment,” Mr Wendelboe said.

Logitech

Chuck Boynton, chief financial officer of Logitech, a Swiss manufacturer of computer keyboards, mice and other accessories, said the company will ship more of its Asian-made products by air instead of by sea. While that's more expensive and could hurt profits, it's better than running out of inventory, he said.

“We will eat some margin to ensure customer satisfaction,” Mr. Boynton told analysts on Jan. 23.

US companies are less exposed.

Goods imported into the United States are not as dependent on crossing the Red Sea. Yet U.S. businesses and consumers are subject to the overall increase in global shipping costs.

Not all sectors are affected equally. Bank of America analysts say retailers are particularly exposed to the risks, with companies like Target and Dollar Tree at greater risk of a profit hit than their main competitors because they source a greater share of their products from Asia. These retailers have not yet reported their quarterly earnings, but other consumer-facing companies have discussed the impact on their bottom lines.

AMAZON

Brian T. Olsavsky, Amazon's chief financial officer, said the disruptions have not yet had a “material impact” on the e-commerce giant's earnings forecast in the current quarter.

“We are vigilant about that and we will try to take steps where necessary to ensure that the customer experience is not affected,” he said.

1-800 flowers

Bill Shea, chief financial officer of 1-800-Flowers, said the company won't see the impact until the disruptions continue into the summer.

“The bigger unknown is how long the problems in the Red Sea will last and whether that will affect future negotiations and next year's holidays,” Mr. Shea told analysts on Thursday.

Ethan Allen

Farooq Kathwari, CEO of Ethan Allen Interiors, told analysts that the furniture maker is not as exposed to the unrest as others because most of its products are made in North America.

“But if most of our products came from abroad, that would be a problem,” he said during a Jan. 24 earnings call.