Operating Costs for UK Businesses Set to Rise Due to Red Sea Conflict

Houthi attacks on western shipping vessels in the Middle East are set to have the knock-on effect of pushing up costs for UK businesses and consumers.

Already struggling with price hikes linked to the Russian invasion of Ukraine, the cost-of-living crisis, and high inflation rates, UK businesses are ill-equipped to deal with another economic blow. Unfortunately though, a survey conducted by the British Chambers of Commerce has found that over half of the UK’s exporters, manufacturers and B2C firms are set to be affected by the Middle eastern turmoil.

The research conducted by BCC’s Insights Unit shows that 55% of British exporting businesses and 53% of the UK’s manufacturers and retailers have already been impacted by the attacks. Many western shipping companies have now had to divert their vessels away from the Red Sea, which is among the busiest shipping routes in the world.

The attacks come in response to the continuing Israel-Gaza conflict, with the Yemeni targeting any vessels they suspect might be heading to Israel. Mohammed al-Bukhaiti, a senior Houthi official, posted on X that “we say to America and Britain: Instead of getting involved in a new war, stop the crimes of genocide in Gaza and allow food, medicine and fuel to enter its besieged population. In return, we will stop our military operations in the Red Sea immediately and without conditions. Isn’t this better for everyone?”. After several US and UK air strikes on Houthi outposts in Yemen, a Pentagon statement referred to the attacks in the shipping lanes as “a threat to the global economy”.

So how is this likely to affect UK businesses?

We’re already starting to see an impact on the UK economy due to the naval conflict, with a 150% rise in shipping costs being experienced by businesses so far this year. Fitch Ratings suggest that these rises will eventually make themselves felt to many more in the coming months. They predict that such “increases are likely to be reflected in rising import prices”, adding that “longer shipping times will reduce supplies of consumer goods”.

Instead of travelling through the Red Sea, shipping companies will be forced to navigate around the entire west coast of Africa instead. This adds an average of almost nine days and 3,500 nautical miles to a typical journey between the UK and Taiwan. As might be expected, these diversions will cost shipping firms millions of pounds.

Managing Director of Forbes Burton, Rick Smith, is concerned that the conflict could be the last straw for many UK businesses. Commenting on the impact to the UK’s business landscape, he warned that “shipping companies can only absorb these price rises for so long before they’re handed down to their clients. Unfortunately, this is likely to have a trickle-down effect in which those suppliers will pass the same price hikes to British businesses.

“Big names such as Ikea, Next and Tesla have already warned of shortages, and unless things are resolved soon, many more are likely to follow suit. Russian sanctions have already put paid to any viable rail alternatives, so the shipping routes have become more important than ever.

“With the economic landscape already so volatile for UK businesses, these developments could signify the final nail for struggling ventures, and unfortunately make others think twice before pursuing growth strategies”.

Worried that further price hikes could hinder your business?

You’re certainly not alone. Thankfully, there are steps you can take to make things easier. Whether it be the renegotiating of debts, restructuring of your business, or even closing up and starting afresh, we ‘ve got the solutions to suit any company.

We’ve helped countless businesses to navigate difficult situations and have been trusted by directors nationwide to deliver honest and effective advice. Companies across most sectors now are struggling with rising inflation, the cost-of-living crisis, and soaring energy bills. Call us on 0800 975 0380, or email [email protected] for a free consultation to find out how we can help.