Red Sea crisis affects German chemicals sector as delay in shipments continue

Red Sea crisis: Germany's chemicals industry, considered Europe's largest chemical industry, has begun feeling the pinch from delayed shipments via the Red Sea, becoming the latest industry to warn of supply disruptions that have forced various companies to curb production.

Crucial Asian imports to Europe ranging from car parts and engineering equipment to chemicals and toys are currently taking longer to arrive as container shippers have diverted vessels around Africa and away from the Red Sea and Suez Canal, following attacks by Yemen's Houthis.

While the German industry has gotten used to supply disruptions during Covid-19 induced pandemic and Ukraine war, the impact of reduced traffic via the trade artery is starting to show, with Tesla's Berlin factory as the most prominent victim so far.

Germany's chemicals sector, the country's third-largest industry after cars and engineering with annual sales of around 260 billion euros ($282 billion), relies on Asia for around a third of its imports from outside Europe.

"My procurement department is currently working three times as hard to get something," said Martina Nighswonger, CEO of Gechem GmbH & Co KG, involved in mixing and bottling chemicals for major industrial clients.

As a result of the delays, Gechem, which makes annual sales in the double-digit millions of euros, has decreased production of dishwasher and toilet tablets because it can't get enough trisodium citrate as well as sulfamic and citric acid.

The company is therefore reviewing its three-shift system, Nighswonger said, while adding that the ripple effects from the transport squeeze could consistently be viewed as an issue for the first half of 2024.

This is causing frank discussions with customers, Nighswonger added.

"If we get three truck loads instead of six, each customer only gets part of their order quantity, but at least everybody gets something," she said.

Bigger speciality chemicals maker Evonik also said it was being hit by "short notice routing changes and delays", adding some ships had changed direction as many as three times within a few days.

The company said it was trying to mitigate the impact by ordering earlier and switching to air freight, which is considered a stopgap because some chemicals are not allowed to be transported by plane.

(With Reuters Inputs)