Red Sea Crisis and Early Peak Season Surge Disrupt Global Supply Chains for some SMBs

Since early May, supply chains have faced significant disruptions due to congestion caused by Red Sea diversions and an early start to ocean freight’s peak season. These factors have resulted in soaring container rates, creating challenges for businesses worldwide.

In July, Freightos conducted a survey of over 100 small business importers and exporters, primarily from the United States, who utilize the Freightos.com marketplace for international freight. The survey aimed to explore the impact of these changes on their operations.

Early Peak Season Shipping and Its Implications

The survey revealed that nearly half (46%) of small and medium-sized business (SMB) shippers began increasing their importing activity earlier than usual, starting in May and June instead of the typical July. The motivations behind this early surge included:

• Avoiding potential delays or high rates later in the year due to the Red Sea crisis (21%).
• Bringing in goods ahead of new tariffs expected in August (24%).
• Preventing disruptions from potential East Coast labor strikes later in the year (8%).

This early start suggests that shipping volumes may ease earlier than usual, providing a silver lining amid the current disruptions.

Impact of Red Sea Crisis on Businesses

The majority of respondents (70%) reported experiencing disruptions since the onset of the Red Sea crisis, with 40% describing these disruptions as significant. Half of those affected indicated that the situation has worsened since May.

Higher ocean freight costs have forced SMB retailers to adjust their pricing strategies. Approximately half of the respondents have increased their product prices due to the spike in freight rates. Additionally, 22% have absorbed higher costs through thinner margins, while 13% have eliminated product lines rendered unprofitable by the cost increases.

To mitigate the impact of ocean logistics disruptions, many businesses (42%) have shifted some of their goods to air cargo.

Future Expectations and Market Outlook

Despite the current challenges, most respondents (58%) do not expect the Red Sea disruptions to be as severe as those experienced during the pandemic.

Looking ahead, about a third (32%) of the businesses surveyed anticipate that ocean rates will subside with the end of the peak season in October or November. Some (20%) are more optimistic, believing conditions will improve as early as September. Others (32%) think logistics will only stabilize once Red Sea traffic resumes.

In the meantime…

The Red Sea crisis and early peak season surge have disrupted supply chains and impacted many small businesses. 

However, there are some proactive, best practices that SMB shippers can employ to weather the storm: 

• Stay on top of the latest in ocean rates and updates for indications of when conditions may be starting to ease.
• Consider expediting some volumes using Less than Container Load (LCL) ocean shipping or air cargo to fill possible short term inventory gaps.
• Leverage relationships with freight forwarders or the reliability of shipping platforms like Freightos.com for advice, accountability and better shipment visibility.  

The anticipated easing of demand and congestion should help mitigate some of the challenges reported in the survey in the coming months. As businesses adapt to the current landscape, monitoring these trends will be crucial for navigating the evolving international freight market.