Higher prices for retailers believed due to Red Sea shipping disruption

UK retailer DFS Furniture recently made a profit warning announcement to investors that due to weak consumer demand and shipping disruption in the Red Sea, this has delayed between £12-14 million worth of deliveries. These will be pushed into the next financial year, affecting this year’s profits.

The company also stated that due to a weak upholstery market and higher shipping costs due to increased freight rates, these have also affected profits.

Professor Sodhi explained more about the situation. He said:

“Many shippers are willing to take the longer route to avoid any risk incident in the Red Sea threatened by the Houthis in Yemen in support of the Palestinians. The longer delivery times affect shipment time and shipping costs for European customers, including those in the UK, as the DFS profit warning indicates.

“Derisking is not up to the companies, though. The UK government's supply of weapons to Israel motivates the Houthis to attack ships, sometimes even when they are not headed to Israel or Israeli owned. The UK government has joined the US forces in attacking the Houthis in the hope of discouraging them, but this has not worked either, despite several Houthis having been killed.

“The UK and the US could initiate a massive operation against the Houthis, but this could further inflame the Middle East, further affecting shipping. Shippers and customers can only hope that the UK, US, and Israel can agree on a ceasefire to restart normal shipping operations through the Red Sea.

“However, this is also not in sight despite President Biden’s proposal, partly because of domestic politics in all three countries. So the only option for shipping companies is to go around Africa, with higher prices for European consumers and lower profits for retailers.”

All comments should be attributed to Professor ManMohan Sodhi.