TL;DR:
- Recent attacks in the Red Sea by Houthi rebels have led to increased military activity. They could raise the cost of agricultural imports to New Zealand due to longer shipping routes.
- The impact on fertiliser costs will be mixed, with nitrogen and compound fertilisers less affected, but phosphate rock and potash will likely increase in price.
- New Zealand may benefit from a competitive advantage in Asian markets as competitors face longer, costlier shipping routes.
Recent conflicts in the Red Sea, involving attacks by Houthi rebels based in Yemen on ships traversing to the Northern Hemisphere via the Suez Canal, have prompted military responses from the US and UK, supported by other nations. This situation poses a new challenge for global shipping routes, with potential implications for New Zealand’s agricultural sector.
Stefan Vogel, a research manager at Rabobank, highlights the potential for increased costs for agricultural imports, including fertiliser and farm equipment, as shipping companies seek alternative routes to avoid the conflict zone.
Many are opting for a detour around Africa’s Cape of Good Hope, extending transit times by 9-15 days and consequently raising shipping costs for goods typically passing through the Suez Canal and the Red Sea.
However, Vogel notes the mixed impact on fertiliser costs. Nitrogen and compound fertilisers, primarily sourced from Asia and the Middle East, are unlikely to be affected by the Red Sea disruptions. In contrast, phosphate rock and potash shipments, originating from Morocco, Europe, and North America and typically routed through the Suez Canal, may see price increases.
The conflict could also exacerbate container freight challenges, reminiscent of the 2021 crisis when New Zealand struggled to secure enough containers for its exports. Vogel warns of a potential repeat of this scenario, which could tighten global container freight capacity, extend shipping times, and drive up freight costs.
Despite this, current container freight rates remain significantly lower than the peak levels seen in 2021, offering some relief from the potential cost increases.
On a positive note, Vogel suggests New Zealand could gain a competitive edge in Asian markets due to the Red Sea tensions. As key agricultural export competitors typically route their shipments through the Red Sea to Asia, the need to divert via the longer, more expensive route around Africa could make New Zealand’s exports more attractive in comparison.
