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When the Red Sea crisis emerged, urging vessels to sail around Africa, Asia-Europe supply chains became seven to 14 days longer. It dalso means that most shippers increase inventories accordingly, as cargo on vessels is de facto an inventory.
In 2024, demand on the Asia-Europe trade grew 8.5%. However, when accounting for inventory increases of seven to 14 days, growth would have dropped to 4.5% to 6.5%. It means that the Asia-Europe trade saw a demand growth of two to four percentage points purely due to increased transit times.
When vessels revert to the Suez routing, supply chain will contract by the same amount as it expanded in 2024. Excess inventory held in longer supply chains will be released, and for a temporary period, importers will curb ordering to mitigate such sudden excess inventory. Of course, the effect on an annual basis is symmetrical, hence, in the year following an opening of the Suez Canal, a negative impact of 2.9 percentage points should be expected on Asia-Europe demand growth. However, contractions in supply chains are likely to play out over a much shorter timeframe than a full year, potentially increasing its severity.
