Credit: Visual China

BEIJING, January 29 (TMTPOST) – Working at a foreign trade company in Guangzhou, Jenny had never thought that the Israeli-Palestinian conflict would have anything to do with her.

Jenny have clients from the Middle East, Africa, and the Americas and Australia. During her eight years of work, she is most familiar with the Red Sea route. This waterway is one of the world's most important shipping lanes.

Jenny's company specializes in furniture hardware products. On November 19 last year, her routine workday was suddenly disrupted by a black swan event on the Red Sea route.

Due to the Israeli-Palestinian conflict, the Houthi rebels in Yemen launched fierce attacks on merchant ships that might be related to Israel, using drones and missiles, in the Red Sea. To date, more than 20 cargo ships have been attacked, many of which are unrelated to Israel.

Many in China are venting their frustrations on social media platform Little Red Book, as their workload has skyrocketed.

For everyone on the global trade chain, the conflict is devastating. Logistics costs have soared, and Jenny's overseas clients are unwilling to place orders. As of January 20, the number of foreign trade orders she secured for the month was only one-fifth of the usual, and correspondingly, her salary shrank by one-third.

As the Chinese New Year approaches, it is usually the busiest time for the foreign trade sector. However, the situation is quite different this year, with overseas clients hesitating.

Jenny had a stable Turkish client who placed an order for furniture hardware accessories every month, and they had been cooperating for over a year. Since December last year, facing high ocean freight costs, this client stopped placing orders.

Jenny communicates with her clients every day, asking whether they have plans for new orders, but has received few responses.

As the backlog of goods gradually increased, the 2,000 square meter warehouse at Jenny's company burst at the seams.

Amber's situation is similar. A number of orders were canceled by her clients, leading to complaints from shipping companies, and she also worries about the safety of the goods drifting at sea.

The reason for the situation was the sharp increase in sea freight rates after the blockage of the Red Sea route. Under the threat of terrorism, from December 15 last year, global shipping giants such as Maersk and MSC suspended their Red Sea routes, opting to reroute their cargo ships around the Cape of Good Hope at the southern tip of Africa. This meant that the voyage from Asia to Europe increased by 6,000 kilometers, and the sailing time also increased by about 15 days. As a result, sea freight rates soared.

Someone had to foot the bill for the skyrocketing freight costs—either the Chinese factories eager to export or the overseas buyers eager to import. Some Chinese factories promised to pay penalties for delayed delivery, and to secure overseas clients, they had to bear the exorbitant sea freight costs.

According to Li Min, a Senior Captain familiar with the Red Sea route, about 70 ships pass through the Suez Canal daily, accounting for 12% of global cargo transport. More than half of these are container ships, while the rest are oil tankers transporting crude oil and petroleum.

These vessels send their positions to international maritime websites 24 hours a day in real-time. A month ago, on such a website, freight forwarder Amber noticed that the real-time positions of some ships had disappeared.

Later, Amber heard industry insiders said that the shipping company might have turned off the tracking to stealthily pass through the perilous Red Sea at night.

"The shipping industry is hugely connected to everyone in the world because over 90% of global logistics transportation relies on shipping," said Li.

Fujian-based freight forwarder Lin Ying said that every winter, European clients order a large number of down jackets from China. Typically, the ordering starts from the end of October and continues until just before the Spring Festival. However, this year, Lin believed that if those orders are affected by the Red Sea crisis, by the time they are successfully delivered to Europe, winter might be over.

Some international brands have already been affected. For example, Swedish furniture retailer IKEA has warned customers that deliveries will be delayed. Goods imported to the Chinese market by sea also face the same uncertainty.

A recent research report released by Oxford Economics in the UK proposes that there is an upward risk to global prices—if the cost of container transport remains at the current level, it could cause the global inflation rate to rise by about 0.6 percentage point. This means that the cost of clothing, food, housing, and transportation may rise.

What worries Jenny and her colleagues the most is that if the situation continues, their overseas customers may turn to other rising world factories, such as India and Vietnam.

If the high cost of sea freight continues, it will erase the price advantage of Chinese products.

Jenny is worried that international clients may be looking for more cost-effective suppliers. She said, "Once clients switch to suppliers from other countries and the first cooperation goes well, they might continue to purchase from there in the future."

Her concerns are not groundless.

Some international clients have already informed her that they might cooperate with local suppliers to get through this period. Suppliers from countries like Turkey, Vietnam, and India could also become their options.

According to Reuters, some companies such as BDI Furniture in the U.S. have said that they are relying more on factories in Turkey and Vietnam to mitigate the impact of supply disruptions, which is also one of the measures to reduce "dependence on China."

If the current situation of the Red Sea route continues, some foreign trade factories will lose part of their overseas orders. "If there is a lack of orders, layoffs might occur,” said Jenny.