Malaysians to pay more for gourmet food as Red Sea crisis raises inflation risk

Shipping giants have shifted freight routes to the Cape of Good Hope around the southern tip of Africa to avoid possible attacks in the Red Sea.
Container shipping rates over the Asia-Europe route have shot up by more than 600 per cent since the war in Gaza broke out, according to data from the Maybank Investment Banking Group (MIBG), leaving little room for importers in Malaysia to keep costs down.

Some importers have decided to hold off on placing new orders with their European suppliers.

“If we need [new stock], we will import. But the costs will have to be passed on to the consumer,” said a business owner who imports European wines, who asked not to be named to avoid damage to his business.

Health authorities in Gaza on Thursday said Israel’s bombardments had killed more than 24,000 people, mostly civilians, with many more believed to be buried under the rubble. Israel launched its military offensive after an October 7 assault by Hamas, killing around 1,200 people and seizing about 250 hostages in south Israel.

For Malaysia, this could raise costs and cause supply chain delays or disruptions in key imports from Europe

Suhaimi Ilias, economist

Economists say there is no avoiding higher shipping fees and logistical delays and disruptions caused by the Red Sea crisis, but warn that things could get worse if the situation persists.

“For Malaysia, this could raise costs and cause supply chain delays or disruptions in key imports from Europe for sectors/industries such as chemicals, machinery and auto,” said Suhaimi Ilias, chief economist with MIBG.

Two-way trade between Malaysia and the European Union was valued at more than 216 billion ringgit (US$45.8 billion) or 7.6 per cent of the Southeast Asian nation’s total trade in 2022, according to data from Malaysia’s international trade ministry.

European imports that year were valued at more than 90 billion ringgit, mostly covering the electrical and electronics, chemicals and chemical products and machinery sectors.

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Prolonged maritime traffic diversion from the Suez Canal to the Cape of Good Hope, which major shippers have said would add up to two weeks in delivery time, could also add inflationary pressure on ordinary consumers in Malaysia.

Over half of the country’s international trade depends on sea transport, said Mohd Afzanizam Abdul Rashid, chief economist with Bank Muamalat.

Before the Red Sea crisis, Malaysia’s government had forecast inflation to hover between 2.1 per cent and 3.6 per cent this year amid plans to restructure broad-based subsidies.

“The risk of inflation is quite visible the way we see it,” Mohd Afzanizam told This Week in Asia.

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The government on Friday said the situation remained manageable for now, and it had yet to receive complaints from either importers or exporters over any increase in freight and operating costs.

“We are still monitoring the situation … we hope it is just for a short term,” Transport Minister Anthony Loke said at a news conference.

Malaysian maritime industry players say the pain will be carried by consumers, as the risks are minimal to the local shipping industry.

The traffic diversion away from the Red Sea is not expected to push freight costs up to Covid-era levels when global trade ground to a near halt due to strict movement curbs, said Cheah Sin Bi, an executive council member of the Malaysian Shipowners Association.

“I think the impact will not be on our shipping industry, but maybe on our consumers … the higher cost of operating will be passed to the consumer,” Cheah said.


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The effects from the Red Sea crisis, however, will be less pronounced in Malaysia compared to Europe, which was heavily dependent on Asian exports of mostly consumer products, said Anthonie Versluis, a maritime industry veteran.

Versluis said the situation would affect global trade in the immediate term due to the surge in container shipping fares, but the bigger concern would be how the situation will play out should the Israel-Gaza war escalate into a broader regional conflict.

“It seems to be getting worse every day, with more rockets [being fired]. The Houthis are saying they will make more attacks on US ships,” he said.

Additional reporting by Hadi Azmi

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