Cyprus soon to feel impact of Red Sea disruptions
Market stakeholders warned against early celebrations over a downward trend in inflation, citing that ongoing attacks by Yemen’s Houthi rebels on vessels crossing the Red Sea are set to have an imminent impact on Cypriot consumers.
In December, Cystat published an inflation rate of 1.6%, slightly lower than Eurostat’s harmonised consumer price index, which recorded 1.9%.
However, the trend is more likely to be reversed as retailers warn that they are forced to push up prices.
In comments to the Financial Mirror, Marios Antoniou, the general secretary of the Cyprus Retailers’ Association, warned that this trend may be overturned, as increases are expected soon in the sale of cars, furniture, clothing, footwear, raw materials, electronics, and electrical goods from the Far East.
Antoniou noted that cargoes from the Far East have taken longer routes around Africa to avoid Houthi attacks, leading to increased costs and imminent price hikes.
It is estimated that if a cargo ship from the Far East to Europe, passing through the Red Sea, takes about 25 days, this rises to about 34 days if the journey is diverted around Africa.
“Importers have already received cargo from the Far East, which had to take the long way round Africa to avoid attacks from the Houthi,” he said.
“Considering this information, it is evident that the prices in these categories will be raised due to changing costs. The prices are set to increase, and we can expect this to happen very soon, even before the end of the month,” he explained.
These developments directly affect imports and exports to Asian markets such as China, Singapore, India and Japan.
According to the latest date from the statistical service Cystat, imports from China from January to October 2023 amounted to around €600 mln, from India €91 mln, and from Japan €255 mln.
“From these markets – and more broadly from Asia – Cyprus imports clothing, footwear, furniture, electrical and electronic appliances and raw materials for the construction sector,” said Antoniou.
The retailers’ representative explained that the situation in the Red Sea is currently affecting essentials and food to a lesser extent, sparing the supermarket basket from significant changes, “at least for now”.
“A clearer picture will emerge with the calculation of material costs, affecting production and the increase in the cost of oil within the next three weeks,” he commented.
Retailers are currently calculating increases to clarify their impact on consumers. The longer transit time is expected to lead to shortages of products, disrupting the market.
Antoniou suggests that businesses and suppliers may try to place bigger orders to secure their stock, but this requires liquidity or borrowing from banks, which poses challenges for businesses.
“To do this, liquidity is needed, as orders are prepaid, or borrowing from the bank, which will push up costs even higher due to high interest rates. If there are not enough funds for the orders, then the stocks in the market are also scarce,” he commented.
In his comments, Marios Tsiakkis, the general secretary of the Cyprus Chamber of Commerce and Industry, noted that freight rates on Asia-Europe lines are expected to surge by over 100%, with the increase for traders in Cyprus approaching 180%.
This surge in transportation costs is impacting various products, including kitchen appliances, with significant price increases anticipated.
“Transportation from China for a 40-cubic-meter container, which was previously €2,500, now costs €7,200 in recent days,” noted Tsiakkis.
€70 more for fridges
“As we have been informed by importers of kitchen appliances, a container carries on average 70 large size refrigerators. They estimate that each fridge will cost 70 euros more by the time it hits the stores,” he said.
Tsiakkis added that the effects are not limited to appliances shipped to Cyprus from the Far East, but also extend to appliances made in Europe with raw materials from China and Japan. He highlighted Tesla’s need to halt production lines in Germany due to a lack of parts imported from Japan.
Despite the price increases, Tsiakkis noted that they are not expected to push inflation to the levels of 2022 and 2023, preventing the European Central Bank from implementing an interest rate hike.
However, he expects the developments in the Red Sea to delay the anticipated drop in interest rates for 2024.
In the shipping industry, sustained Houthi attacks on vessels using Red Sea shipping lanes could have a substantial impact on economies and prices, warned the Cyprus Shipping Chamber.
“Where countries heavily depend on raw materials, gas, grains and pharmaceuticals we will have to assume that it will have a substantial impact on day-to-day living, business operations, and this will have a multiplying effect,” said CSC Director General Thomas Kazakos.
Kazakos noted that the disruption of vital trade routes, particularly for oil, may lead to increased freight prices and supply bottlenecks.
The shipping industry group, representing about 200 major companies, emphasised the potential multiplying effect on daily life and business operations, considering Cyprus has the third-largest shipping fleet in the European Union.