As the humanitarian crisis intensifies in Gaza, the global silence in critical power circles signals a misconception that the turmoil will remain confined to local dimensions. Recent heightened attacks on commercial vessels by Yemen’s Houthi militants have prompted significant players like BP (British Petroleum) and top container shipping companies, including MSC, Maersk, Hapag-Lloyd, and CMA CGM, to halt transit through the Red Sea, consequently avoiding the critical Suez Canal.
The Red Sea shipping crisis is now a worldwide focal point of concern due to its significant implications for the intricate global supply chain. This crisis, characterized by geopolitical tensions, security concerns, and intermittent blockades, disrupts maritime trade routes, causing a ripple effect extending to various corners of the world, including Pakistan.
Understanding the multifaceted effects of this crisis and its specific implications for inflation in Pakistan necessitates a comprehensive examination of the interconnected dynamics at play.
At the core of the crisis lies a substantial delay in the transportation of goods. The Red Sea, a critical passageway accounting for 12% of global trade, has witnessed disruptions that impede vessel movement.
These delays, rippling through the supply chain, create global bottlenecks affecting manufacturers, suppliers, and retailers.
Businesses, already navigating the complexities of the post-COVID-19 landscape, face additional challenges in maintaining efficient production schedules and managing inventories, as goods take an extended period to reach their destinations.
Compounding these challenges is the surge in shipping costs linked to the crisis. Rerouting of vessels, heightened security measures, and other operational challenges contribute to additional expenses for the shipping industry.

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As of last Tuesday, the price to ship a container from China to the Mediterranean was $2,413, having risen 44% in December due to disruptions after hitting a low of $1,371 earlier this year, said Eytan Buchman, Chief Marketing Officer at Freightos, a booking and payments platform for international freight.
These increased costs are not borne solely by the maritime sector but are often passed on to consumers. Consequently, this surge in shipping costs contributes to higher prices for goods and services globally, adding an inflationary dimension to the challenges faced by economies worldwide.
Zooming in on Pakistan, a nation deeply reliant on imported raw materials, LNG cargoes, and finished goods, the repercussions of the shipping crisis are palpable. The delayed arrival of essential goods, including basic materials and finished products, disrupts the delicate equilibrium of the domestic supply chain. Industries reliant on timely imports may experience production slowdowns, impacting economic activities and employment. Sectors such as manufacturing and retail, relying heavily on just-in-time inventory practices, must improve their operational efficiency. This is likely to deteriorate the already slowing large-scale manufacturing sector further.
The inflationary effects of the shipping crisis have immediate and direct implications for Pakistan’s economy, which is already contending with inflationary pressures on various fronts.
The longer journey will cost up to $1 million extra in fuel for every round trip between Asia and Northern Europe, according to estimates from the freight platform Xeneta. Retailers and manufacturers will likely pass on the higher costs to consumers, potentially boosting inflation during a prolonged cost-of-living crisis.
The rise in shipping costs, coupled with delays in the arrival of goods, contributes to an overall increase in the cost of living. Essential commodities, including food and energy, become more expensive, impacting households and potentially leading to social and economic challenges.
Pakistani policymakers and businesses must re-evaluate and adapt their supply chain strategies in response to these challenges. There is a growing emphasis on building more resilient and diversified supply chains to mitigate the impact of future disruptions.
In conclusion, the shipping crisis in the Red Sea has intricate and far-reaching effects on the global supply chain, with direct consequences for Pakistan. If the disruption continues, it may reverse the downward trend of inflation in the upcoming print and restrict the central bank from being more accommodative in its policy to stimulate an already stalled economic growth engine.
Also, for the ordinary person on the street, relief is not in sight due to the sudden rise in energy prices, at least in the short term.




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