The Red Sea is the only way to pass through Asia and Europe, and the Red Sea-Suez Canal** channel accounts for 12% of the world's total daily merchant ships**, including 30% of container traffic and 10% of oil shipping; If you don't go through the Red Sea, you'll have to make a detour to the Cape of Good Hope, the southernmost point of Africa, and you'll have to travel an extra 3,280 nautical miles.
Since November 2023, Yemen's Houthi operations against Israel in the Red Sea have led to the suspension of all container ship traffic through the Bab el-Mandeb Strait and the Red Sea announced on December 15 that a number of international shipping companies, including German shipping company Hapag-Lloyd, Denmark's Maersk Line, Mediterranean Shipping Company and France's CMA CGM Group. Although the US Navy pulled up a convoy alliance in the Red Sea, it was very ineffective. Freight and insurance costs for the Red Sea shipping lanes are already 20-30 percent, and the additional costs and undesirable risks have led to a 40 percent drop in shipping volume across the shipping lanes, but if shipping companies choose to avoid the Red Sea, one round trip from Asia to Europe per merchant ship will add $4 million in fuel costs. The industry generally believes that the impact of the Red Sea crisis on China's cotton and cotton textile industry is "short and long", and there is limited optimism for the following reasons:
The Red Sea crisis has not only led to a greater impact on the exports of textiles and garments from Southeast Asian and South Asian countries to Europe, but also the decline in the volume of Brazilian, American cotton, and African cotton purchased by some countries. Some export orders from Bangladesh, Indonesia and other countries have also had to return to China due to raw material problems and transportation problems. For export enterprises in Southeast Asia and South Asia, if they detour to the Cape of Good Hope, not only the freight will be greatly reduced, the profit will drop significantly, and there will be great uncertainty in the delivery time.
Although the Red Sea crisis has also had a certain impact on China's textile and clothing exports to Europe (routes in Europe and the Middle East have seen empty flights), on the one hand, the China-Europe train can be a strong alternative to sea freight, and the shipping space of the China-Europe train has been booked in advance, and the freight rate in January has been **10-20% month-on-month; On the other hand, the proportion of the European market in China's textile and garment exports continues to decline (accounting for 14. in 2022).4%, from January to October 2023, China's cotton knitted and woven garments fell by 30 to the European Union9% and 207%）。On the whole, due to the fact that in 2023, China will rotate out more than 880,000 tons of cotton reserves (imported cotton accounts for a relatively large proportion), and the port cotton inventory is sufficient (the transportation of US cotton and Brazilian cotton is not prominent due to the Red Sea crisis), so domestic cotton and imported cotton are sufficient, and the confidence to receive export orders (including traceability orders) is sufficient.
In the medium and long term, the Red Sea crisis is not conducive to China's cotton consumption and cotton textile and garment exports. First of all, the Red Sea crisis has led to container shortages and port congestion, and the shortage of empty containers may spread to Asian ports as soon as mid-to-late January, and the empty containers needed in China's peak export season may be trapped in other places (such as textile and clothing exports, cotton import containers** are insufficient), and ships in Asia will also face the challenge of empty container availability; Secondly, affected by the tension in the Red Sea region, the freight rates of North American routes and Persian Gulf routes will continue to continue in an all-round way. Thirdly, the China-Europe freight train only temporarily plays a substitute role in the Red Sea route, and the carrying capacity is still not comparable with that of sea transportation. At present, the cabin section in January and February has been fully booked in advance by European customers, but at the same time, it restricts the export demand of textiles and apparel to other countries and regions, and the difficulty of contract performance has increased.
Edited by China Textile Association ingots.
* China Cotton Storage Information Center.