The Red Sea is a necessary route for Asia and Europe, and the daily trade volume of commercial ships on the Red Sea Suez Canal trade route accounts for 12% of global trade, including 30% container transportation and 10% oil shipping; If you don't pass through the Red Sea, you will have to detour to the southernmost point of Africa, the Cape of Good Hope, and run an additional 3280 nautical miles to reach Europe.
Starting from November 2023, the Yemeni Hussai armed forces launched operations against Israel in the Red Sea, leading to multiple international shipping companies announcing on December 15 the suspension of all container ship transportation through the Strait of Mandela and the Red Sea, including German shipping company Herbert, Danish Maersk Shipping Group, Mediterranean Shipping Company, and French shipping group Daffy. Although the US Navy has formed an escort alliance in the Red Sea, the effect has been very poor. At present, the freight and insurance costs of the Red Sea route have increased by 20-30%. The additional costs and unpredictable risks have led to a 40% decrease in the passage volume of the route. However, if shipping companies choose to avoid the Red Sea, each merchant ship traveling back and forth from Asia to Europe will increase fuel costs by $4 million.
The industry generally believes that the impact of the Red Sea crisis on China's cotton and cotton textile industry is "short, long, and optimistic", with the following reasons:
One reason is that the Red Sea crisis not only has a significant impact on the exports of textiles/clothing from Southeast Asian and South Asian countries to Europe, but also a decrease in the quantity of Brazilian, American, and African cotton purchased by some countries. As a result, clothing companies/retailers from European, American, and other countries directly place orders with Chinese processing companies. Some export orders from countries such as Bangladesh and Indonesia have also had to return to China due to raw material and transportation issues. For export companies from Southeast Asia/South Asia, if they bypass the Cape of Good Hope, not only will shipping costs significantly increase and profits significantly decrease, but there will also be significant uncertainty in delivery time.
Secondly, although the Red Sea crisis has also had a certain impact on China's textile and clothing exports to Europe (empty flights have already occurred on routes in Europe and the Middle East), on the one hand, China Europe freight trains have a strong substitutability for sea freight, and the seats on China Europe freight trains have been fully booked in advance. The freight rates in January have increased by 10-20% compared to the previous month; On the other hand, the proportion of the European market in China's textile and clothing exports continues to decline (accounting for 14.4% in 2022, while from January to October 2023, China's cotton knitted and woven clothing exports to the European Union decreased by 30.9% and 20.7%, respectively). Overall, due to China's shipment of over 880000 tons of reserve cotton in 2023 (with a relatively large proportion of imported cotton) and sufficient cotton inventory in ports (the transportation of American and Brazilian cotton is not particularly affected by the Red Sea crisis), there is sufficient supply of domestically produced and imported cotton, and ample confidence in receiving export orders (including traceability orders).
Thirdly, in the medium to long term, the Red Sea crisis is not conducive to China's cotton consumption and cotton textile and clothing exports. Firstly, the Red Sea crisis has led to container shortages and port congestion. The shortage of empty containers may spread to Asian ports as early as mid to late January, and the empty containers needed for China's export peak season may be trapped elsewhere (such as insufficient supply of containers for textile and clothing exports and cotton imports). Ships in the Asian region will also face challenges in the availability of empty containers; Secondly, affected by the tense situation in the Red Sea region, market freight rates on North American routes, Persian Gulf routes, and other routes will continue to rise comprehensively, and the costs of China's textile and clothing exports and cotton imports will rise; Once again, the China Europe freight train only temporarily serves as a substitute for the Red Sea route, and its carrying capacity still cannot be compared to sea freight. At present, the cabin segments in January and February have been fully booked by European customers in advance, but at the same time, it restricts the export demand of textiles and clothing to other countries and regions, and the difficulty of contract fulfillment has increased
