Blockade of the Suez Canal, what repercussions for exports?

The start of 2024 for global exports was marked by the recent blockage of the Suez Canal.

The latter represents a trade route of essential importance for the passage of goods at a global level; according to a report by The Economist Intelligence Unit, in fact, 30% of container traffic and 12% of world trade passes through this stretch of sea. The repeated attacks by the Yemeni Houthi group on cargo ships transiting the strait have led to the closure of the choke point, and consequently the need to identify new routes for goods.

Already last December Kile trade indicator showed a 2% decline in exports from the EU following this geopolitical crisis. 

What is the impact on Italian exports and above all, how can exports from our country be safeguarded?

Blockade of the Suez Canal, the first effects

To deal with the emergency in the Suez Canal, several international companies changed their trade routes, opting to pass through the Cape of Good Hope in South Africa.  This is a choice that implies higher transport costs (an increase of around 1500 dollars per container) and significant delays, which can reach up to 20 days. 

Up to this point, Italian companies have experienced limited repercussions. The need, however, is to develop strategies capable of dealing with the emergency as soon as possible. The goods that pass through the Red Sea from Italy cover almost 9% of our exports, as reported by Confartigianato. In other words, it is a business volume that exceeds 53 billion euros and which must be safeguarded. 

The incidence is high both for the imports of crude oil and metalworking products (around 30% of the total purchases from abroad), and for the supply of oil and liquefied natural gas from "alternative sources", after the goodbye to Russian methane.

The sector the fruit and vegetable sector is most alarmed, as the lengthening of the route increases not only transport costs but also the price of the goods which may undergo an increase in prices of over 10 euro cents/kg. Furthermore, there is also an important repercussion on the shelf-life of fresh products, in particular apples, kiwis and citrus fruits.

In this context, Italian companies are evaluating actions capable of addressing the ongoing situation and safeguarding theexport.

Protecting Italian exports from the Suez crisis, what measures?

It therefore seems clear how critical the situation has become from an economic point of view. Many businesses are feeling the impacts of the lockdown and must take action to address the inevitable slowdowns in trade. Therefore, it is possible to move actively by adopting some measures that could represent an ideal alternative solution. But what are these measures? Two strategies can be undertaken:

Short-term approach

• Consolidate presence of the company in the markets in which it is already present. We refer to markets such as the European one, convenient both for its geographical proximity and for the few barriers to entry.
• However, given that the European market is less vital than other markets, it is advisable to do so in parallel search for new markets outlets that are easy to reach and not too difficult to penetrate (e.g. Balkans and Nordics).
• In the wake of the search for new markets, a good alternative could be the United States which still offers many opportunities in various sectors. 

Long-term approach

• From a strategic point of view, also in consideration of the opportunity offered, it is appropriate preside over the Asian market with a logic of local for local aiming to create a direct presence supported by a local network (service, customers, suppliers, etc.). In the area, India is currently the most promising country for this type of investment.

Finally, whether it is a question of entering new markets or whether you want to consolidate your presence in already known areas, to ensure that the problems in the Suez Canal do not have an excessive impact on your business, it is necessary review your supply chain. In order to avoid excessive slowdowns in production and shelf-life (as in the case of fresh products), the supply chain must not suffer any problems of any kind. It could, therefore, be appropriate to focus on new suppliers not involved in critical geographical areas and carry out the right qualification process. 

The situation in the Suez Canal is a priority on the international political agenda. The objective is to guarantee the safety of transits through the Suez Canal as soon as possible, thus avoiding other negative effects on international trade. 

While waiting for the institutions to take measures to address this situation in the short term, each business must take the reins of its business into its own hands and decide which short and long-term strategies to adopt. Naturally these are very difficult choices for which different skills are needed: knowledge of internationalization strategies and markets, local presence and experience gained in the field are key factors for the success of these strategies. 

If you would like to consult with our experts, do not hesitate to contact us.