Red Sea Crisis Shows that Supplier Countries Need to Develop a West Plus One Policy

When Israel launched the counter-offensive to the 7 October 2023 Operation Al-Aqsa Flood of Hamas, it turned out to be what it was expected to be: unforgiving, relentless and heavy in intensity. What was also expected was the reaction of all Iran-backed regimes and militant groups in the region. The Houthi movement of Yemen, which is mostly made up of Zaidi Shias, announced on 10 October that if the US intervened in the Gaza conflict directly, the group would respond by firing drones and missiles, and take other military options.

It wasn’t an empty threat. Abdul Malik al-Houthi, the leader of the Houthi movement, joined Hezbollah, Kata’ib Sayyid al-Shuhada (KSS) and Harakat al-Nujaba, in legitimising the Hamas offensive. Tension ran high in the region, and matters were bound to accelerate.

The first Houthi attack came on 19 October and the US was drawn in directly. The USS Carney, a US Navy guided-missile destroyer in the northern Red Sea, shot down multiple missiles and drones launched from Yemen that were headed toward targets in Israel. The scale of the attack: four cruise missiles and 14 drones were shot down. The next big attack came in the last week of October.

In spite of the writing on the wall, commercial shipping carried on... till Houthi militants hijacked an India-bound cargo ship—Galaxy Leader—in mid-November. The ship was owned by an Israeli businessman and operated by a Japanese firm, Nippon Yusen (NYK Line). The Houthis filmed the operation and released a snazzily-edited video. It was faithfully carried by many news organisations, and left many unsettled at what they saw.

Nevertheless, the prevailing notion at the time was that only those with Israeli owners or past links with Israel had anything to worry about. This misplaced notion was bolstered by security advisories from global risk management firms. Shipping companies carried on plying the Red Sea route despite the sporadic attacks on ships all through November.

There wasn't even a vestige of a murmur from the fashion industry, which depends considerably on the Red Sea route. It was shipping as usual, till the Houthis sprang a surprise—a near-miss attack on the Maersk Gibraltar on 14 December. There was another attack on Hapag-Lloyd's Al Jasrah. Both companies halted operations through the Bab el-Mandeb Strait around the port of Aden in south Yemen, and re-routed ships around the Cape of Good Hope.

Both insurance and re-routing costs shot up, and exporters scrambled to find alternative air, land and ocean routes. Depending on the locations, air freight could be 5-15 times more than ocean freight.

On 18 December, US Secretary of Defense Lloyd Austin announced the formation of an international maritime security force aimed at ending the blockade and countering threats by Houthi forces against international maritime commerce in the region. The operation was called Operation Prosperity Guardian and had over 20 member countries. Some remained anonymous, with Egypt and Saudi Arabia being notably absent.

As Operation Prosperity Guardian launched operations, hopes began to rise and Maersk and others announced resumption of the Red Sea route. The US-led operations, however, flattered to deceive. Houthi attacks on vessels continued, and Maersk Hangzhou was hit on 30 December. Maersk first paused operations for three days, and then "until further notice."

With freight rates jumping by notches, everyone knew trade was affected and also to what extent. Yet, only Ikea and Next were ones to publicly admit that there were delays in shipments and that shortages were expected. Everyone else kept their lips glued shut.

In January, UNCTAD estimated that the weekly transits going through the Suez Canal decreased by 42% over the last two months. It said: “The crisis in the Red Sea, marked by Houthi-led attacks disrupting shipping routes, has added another layer of complexity. Major players in the shipping industry have temporarily suspended Suez transits in response. Notably, container ship transits per week have plummeted by 67% compared to a year ago.

“The surge in the average container spot freight rates during the last week of December, by plus 500 dollars, in one week, was the highest ever weekly increase. Average container shipping spot rates from Shanghai this week are up by 122% compared to early December. i.e. have more than doubled. The rates from Shanghai to Europe went up by 256%, i.e. more than tripled. Rates to the United States West coast also increased above average, although they do not go through Suez. They increased by 162%. Here we see the global impact of the crisis, as ships are seeking alternative routes, avoiding the Suez and the Panama Canal.” The Suez Canal handles 12–15% of global trade and 25–30% of container traffic.

The Red Sea crisis, of course, is about global trade, and the fashion industry owns only a small portion of what passes through the trade route.

Still, it may be worthwhile to note how the industry has reacted—both to the crisis itself as well as in the broader context of sourcing and trade.

In the beginning there was no reaction from the industry. Or for that matter, from members of industry. Retail giant H&M had even gloated about its prowess over logistics and dismissed apprehensions over possible disruptions in the early days of the crisis. But in the end of March 2024, it was reported that H&M had postponed the start of some Spring/Summer campaigns to adjust to shipping delays caused by the Red Sea crisis. "We have made some short-term adaptation on the starting date and the launch date of campaigns," CEO Daniel Erver told Reuters in an interview, adding the impact on what was available to customers was minor.

There are three observations to make here, and none of those are directly linked to the crisis.

The first is the failure to look at the entire thing as a conflict. Over 100 associations from the apparel and footwear industry in February released a statement imploring the international community to restore safety and order in the region. That, of course, is fair for anyone to ask. However, Operation Prosperity Guardian is more of a US-led military initiative. Even Operation Aspides, that was subsequently launched by the European Union (EU), is one. The attacks carried out by the Houthis is nothing like the situation created earlier by Somali pirates in the close by region of the Horn of Africa. The current situation is a spin-off from the conflict in Gaza. As long as the Gaza conflict does not subside, neither will this. Moreover, the Yemeni civil war itself is not a fallout of the Gaza mess—it is a crisis that has been accentuated by US-led forces since the fall of Ali Abdullah Saleh in 2012. 

There are few ways that this can end. The first is that the Gaza conflict draws to an end, and the Houthis cease hostilities as a result. There is, however, no guarantee that will happen. Israel is determined to see the end of Hamas, and even if the Israeli Defence Forces (IDF) withdraw from Gaza, the likelihood of Houthis putting an end to the firing of missiles and launching drone attacks is not guaranteed. Pleading for safety is fine, but the fashion industry also needs to understand that the entire battleground that the MENA region (Middle East and Northern Africa) is today happens to be a direct fallout of incessant meddling of the US/UK/EU. NATO should stop fuelling and funding conflict first.

The second is the Yemeni crisis as a case in point. Yemen’s is known to be the worst humanitarian crisis in the world today. The United Nations Population Fund (UNFAP) had this to say in December 2023 when the Red Sea crisis was unfolding: “Yemen remains one of the world’s largest humanitarian crises. In 2023, a staggering 21.6 million people require some form of humanitarian assistance as 80 percent of the country struggles to put food on the table and access basic services.

“Eight years of conflict, compounded by economic collapse, natural disasters and the COVID-19 pandemic, have taken an inordinate toll on women and girls. The health system has virtually collapsed cutting their access to life-saving sexual and reproductive health services. Today a woman dies during pregnancy and childbirth every two hours from causes which are almost entirely preventable with access to services. In 2023, more than 1.5 million pregnant and breastfeeding women are projected to suffer acute malnutrition – with risks of negative birth outcomes and malnourished infants.” The misery that Yemeni people have to endure is untold.

The world has simply not risen to the occasion. Instead, the US has constantly bombed the country all through the Yemeni civil war. Under then US President Barack Obama alone, the US killed an estimated 3,797 people, including 324 civilians. Obama even said: "Turns out I'm really good at killing people, Didn't know that was gonna be a strong suit of mine."

The third is the failure of the fashion industry to make backup plans—ones that are meant to respond to contingencies. The post-COVID literature on what the fashion industry (meaning, the West) should do so that it is not left high and dry by what happens in China is abundant. And honestly, quite tiresome too. As argued before, the entire exercise seemed to have been one meant to show China its place and less about actually fixing broken links. It was all about ensuring that brands and retailers (all in the West) can ensure a steady flow of, well, supplies.

Manufacturing countries, on the other hand, have been paid little attention to, and most of the sermons have been about how to maintain supply—to the West—in the event of a crisis. These countries have not been advised to look for other—alternative—markets. This was alluded to by the Federation of Malaysian Manufacturers (FMM) in January: ““To bolster supply-chain security amidst geopolitical uncertainties, FMM suggests a strategic shift in dependence on ASEAN by exploring nearshoring and sourcing within the region. This approach not only promises cost savings but also enhances supply-chain resilience.” The FMM called for leveraging the Regional Comprehensive Partnership Agreement (RCEP) as a strategic ploy.

This idea is particularly relevant to countries in South Asia which depend on the Red Sea to transport all the goodies to Europe. But South Asian nations have themselves to blame for not building on the South Asian Free Trade Area (SAFTA) agreement. Countries in South Asia have been obsessively dependent on Western Europe and North America for trade. But this is 2024, not 2004. China and India especially are not what they were 20 years ago, or even 10 years ago. Both have very strong domestic markets and have their own internal robust textile-apparel ecosystems. As during the pandemic, this time too, many suppliers in Bangladesh have had to bear the brunt of cancelled orders. It would have helped had these manufacturers built a regional base too.

Conflicts are going to continue, and new ones are likely to sprout here and there. It would make sense to turn the China Plus One policy on its head. It was about creating alternative sourcing points while maintaining an inflow of goods from China. It was, obviously, a buyers’ strategy. What is now needed is a West Plus One policy—an out and out sellers’ strategy. Keep supplying to the West, but build alternatives too so that you can export to others when routes to the West are disrupted.