Red Sea crisis sees concerned retailers accelerate deliveries of Christmas stock, INVERTO research

The Red Sea crisis has forced UK retailers to accelerate their stocking ahead of the key Christmas trading period, according to supply chain management consultancy INVERTO, part of Boston Consulting Group.

This has already meant that the shipping industry has had to work throughout the traditional summer lull to move goods from China and other parts of South-East Asia to the UK and Europe.

Retailers are concerned that the traditional peak pre-Christmas shipping period could be disrupted as the shipping industry strains to deal with the closure of the Red Sea. They are also trying to get goods shipped in case volatile shipping rates suddenly start moving higher again.

Disruption caused by the Red Sea attacks on shipping have led to a massive increase in shipping costs – the Drewry World Container Index (WCI) is up 270% since the start of the crisis from $1389.5 (Oct 5 2023) to $5,182 (Aug 29 2024).

Further increases in cargo rates could occur, with analysts predicting that demand for shipping will remain high until at least February 2025 (following Chinese New Year). Potential labour disputes on both the US East and US Gulf coasts could further disrupt supply chains and increase cargo rates.

Typically, retailers would expect goods for the Christmas period after September, but this year they are demanding shipments from suppliers from July onwards. This move has put pressure on suppliers to fulfil pre-agreed orders months in advance.

Patrick Lepperhoff, Principal at INVERTO, says: “The prolonged impact of Red Sea disruptions is having knock-on effects across supply chains. Supply chains still remain very brittle.”

“Usually, the summer is a quiet time for shipping and warehousing. However, at present the shipping industry is remarkably busy, as the complex process of getting shops stocked for the key Christmas period is moved forward two months.”

“This has put pressure on the retailers themselves as they take in more stock early which they may not have warehouse space for. Instead, retailers will need to seek short-term storage backup space, which can be very costly.”

“Whilst freight rates have eased back a little in the last couple of weeks, firms can’t wait for further easing. They have little option other than to speed up the production and shipment of their goods. Doing so requires strong relationships with suppliers and carriers.”

One way INVERTO recommends firms navigate these difficult shipping conditions is to engage in block-space agreements – where retailers and carriers negotiate a price for a future fixed volume/weight of cargo.

This can help firms secure some certainty over cost and guarantee shipping capacity, effectively hedging their price.

Lepperhoff notes that block-space agreements could lead to savings on the current spot rate on routes from Asia to Northern Europe, with even more pronounced savings on transatlantic routes.

He comments: “Many retailers have responded to these shipping challenges by entering into block-space agreements. Christmas is a crucial trading period for retailers, so it is essential to have certainty on available stock and upfront costs.”

Other recommendations for retailers:

• Establishing a logistics task force to optimise costs by monitoring freight rates and lead times

• Implement AI solutions to determine optimal shipping routes based on real-time conditions and rate fluctuations

• To evaluate relationships between suppliers and procurement, with a view to exploring options for nearshoring so supply chains are more resilient to future supply chain risks

2024 RTIH INNOVATION AWARDS

Supply chain technology is a key focus area for the sixth edition of the RTIH Innovation Awards, which is now open for entries.

The awards, sponsored by CADS, 3D Cloud, Retail Technology Show 2025, and Business France, celebrate global tech innovation in a fast moving omnichannel world.

It’s free to enter and you can do so across multiple categories.

Key 2024 dates

Friday, 25th October: Award entry deadline 

Tuesday, 29th October: 2024 shortlist revealed

30th October-6th November: Judging days

Thursday, 21st November: Winners announced at the 2024 RTIH Innovation Awards ceremony, to be held at RIBA’s 66 Portland Place HQ in Central London.