Suez Canal blockade, what repercussions for exports?

The beginning of 2024 for world exports was marked by the recent blockade of the Suez Canal.

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

As early as last December, the Kile trade indicator showed a 2% decline in exports from the EU as a result of this geopolitical crisis. 

What is the impact on Italian exports and more importantly, how to safeguard exports from our country?

Suez Canal blockade, the first effects

To cope with the emergency in the Suez Canal, several international companies have changed their trade routes, opting to pass through the Cape of Good Hope in South Africa.  This is a choice that implies higher transportation costs (a surcharge of around $1,500 per container) and major delays, which can be as long as 20 days. 

So far, Italian businesses have experienced limited repercussions. The need, however, is to develop strategies as soon as possible that can cope with the emergency. Goods transiting the Red Sea from Italy cover almost 9% of our exports, as reported by Confartigianato. In other words, this is a volume of business that exceeds 53 billion euros and must be safeguarded. 

The incidence is high for both imports of crude oil and metal products (about 30% of total purchases from abroad), as well as’’oil and liquefied natural gas supply from “alternative sources” after the farewell to Russian methane.

The sector most on the alert is the fruit and vegetable sector, as the lengthening of the route increases not only transportation costs but also the price of the commodity, which can rise by more than 10 cents/kg. In addition, there is also an important impact on the shelf-life of fresh produce, especially apples, kiwis, and citrus fruits.

In this context, Italian companies are considering actions that can address the current situation and safeguard the’export.

Protecting Italian exports from the Suez crisis, what measures?

It seems, therefore, clear how critical the situation has become from the perspective of the economy. Many companies are suffering the repercussions of the blockade and must take action to cope with the inevitable slowdown in trade. Therefore, it is possible to move actively by taking some measures that could be an ideal alternative solution. But what are these measures? Two strategies can be undertaken:

Short-term approach

• Consolidating the presence of the company in markets where it already has a presence. We refer to markets such as Europe, convenient both because of geographic proximity and few barriers to entry.
• However, since the European market is less viable than other markets, in parallel it is recommended to search for new markets outlets that are easy to reach and not so difficult to penetrate (e.g., Balkans and Nordics).
• In the wake of seeking new markets, a good alternative may be the United States, which still offers many opportunities in various sectors. 

Long-term approach

• From a strategic point of view, also in view of the opportunity provided, it is appropriate to presiding 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 you want to enter new markets or consolidate your presence in areas you already know, to make sure that problems in the Suez Canal do not unduly impact your business, you need to review its supply chain. In order to be able to avoid excessive slowdowns in production and on shelf-life (as in the case of fresh produce), the supply chain must not suffer hiccups of any kind. It may, therefore, be the case to target new suppliers not involved in critical geographic areas and carry out the right qualification process. 

The situation in the Suez Canal is a priority on the international political agenda. The goal is to ensure safe transits through the Suez Canal as soon as possible, thereby avoiding other negative effects on international trade. 

While waiting for institutions to take action on this situation in the short term, every business must take the reins of its trade into its own hands and decide which strategies both short- and long-term to adopt. Of course, these are very difficult choices for which a variety of skills are required: knowledge of internationalization strategies and markets, local presence, and experience gained in the field are key factors for the success of such strategies. 

If you would like to discuss with our experts, please feel free to contact us.