Chemical Supply Chains Disrupted by Red Sea Attacks, Industry Faces New Challenge

The chemicals industry, particularly in Europe and Asia, is severely impacted by disruptions to Red Sea cargo shipping caused by the Houthis' continued attacks in Yemen, according to Al Greenwood, a chemicals expert and deputy editor for the energy and chemicals consultancy firm ICIS. He says that because US exporters can ship chemicals and other items on simpler routes that bypass the Red Sea, the impact has been less in the US.

As Asian producers compete with the much longer and more costly shipping route from Asia to Europe, which circles the Cape of Good Hope on the southern tip of Africa rather than via the Red Sea and the Suez Canal, Greenwood refers to this phenomenon as "a mini Covid" effect for Europe and Asia in particular. Due to the fact that tankers and container ships are spending more time on the water, this has decreased shipping capacity.

Before new trade tariffs are implemented, there is also a spike in demand for shipping. According to Greenwood, Chinese exporters have been front-loading shipments in recent months to avoid EU taxes on Chinese-imported electric vehicles that were set to take effect on July 4. He claims that the impending higher US tariffs on Chinese electric vehicles and batteries, which are scheduled to take effect on August 1st, have made this frontloading worse.

"You get an ugly picture when you add that to the economic recovery in Asia," Greenwood says to Chemistry World. He claims that as container shipments accumulate, Asian ports are experiencing extreme congestion. Owing to the scarcity of container ships and the ensuing reduction in shipping capacity, a number of importers from Europe, Turkey, and India have switched to breakbulk ships, which transport cargo without the need for containers. As a result, loading and unloading shipments takes longer and is more difficult. He points out that excessive freight costs in South Korea have resulted in the cancellation of polymer material shipments.

Reshoring to Europe

In the meantime, domestic producers in Europe are now more competitive with imports from Asia due to high shipping costs. "We've seen businesses go to European producers if the material is available, and that's giving some chemical producers in Europe a break," says Greenwood.

One of the biggest producers of polymers in Europe, LyondellBasell, stated in an April earnings report that logistics problems in the Red Sea limited competitive imports into Europe, which resulted in higher volumes coming from the company's local assets for olefins, polyethylene, polypropylene, and propylene oxide and derivatives.

A drought had reduced the number of vessels using the Panama Canal, severely restricting shipping in the United States. That seems to be coming to an end. As the drought conditions lessen, the Panama Canal Authority plans to increase the number of daily slots available for vessels to pass the Panama Canal in August. That will reduce tension a little.

Until operations through the Red Sea and the Panama Canal are normalised, it is unclear if the recent alterations in the global supply chains of the chemical sector will be semi-permanent or longer-term.