The initial benefits of New Zealand’s trade deal with the European Union could be undercut by attacks on shipping vessels in the Red Sea, foreign affairs officials have warned.
There are also fears the shipping disruptions could have a more profound effect on Kiwi businesses in the coming months, as the primary sector heads into its peak period for exports to Europe.
Yemen’s Houthi rebels began a series of missile and drone attacks against shipping vessels in the Red Sea last November, in protest at Israel’s invasion of Gaza following the Hamas massacre of Israeli civilians on October 7.
Defence Minister Judith Collins has cited the potential impact on businesses as a justification for sending six NZ Defence Force personnel to the Middle East to support air strikes against Houthi targets, saying: “We cannot just sit in blissful ignorance and naivety and think that everyone else needs to protect us and protect our shipping lanes.”
In a report on the impact of the shipping disruptions, the Ministry of Foreign Affairs and Trade said a number of Kiwi businesses were already reporting delays, rising transportation costs due to redirection surcharges, and cancelled export orders.
Europe, the United Kingdom and North Africa were significant markets for New Zealand exports, with $7.7 billion of goods (11 percent of the country’s overall goods exports) sent to the three regions in the year to September 2023.
The vast majority of those exports were primary sector products such as meat, wine, and dairy, and their highly seasonal nature – with the typical peak of exports to Europe taking place between April and June – meant the Red Sea disruptions could have a growing impact in the coming months.
With New Zealand’s trade deal with the EU expected to enter into force sometime in the middle of the year, “ongoing trade disruption as a result of events in the Red Sea put the gains of this hard-fought FTA at risk”, the ministry said.
Europe, the UK and North Africa were also important sources of key imports such as machinery, vehicles, and medicines. While most medicines and vaccine imports from Europe were air freighted to New Zealand, the shipping disruptions were having a knock-on effect for other transportation methods.
Fourteen percent of New Zealand’s fertiliser imports came from North Africa, and any additional costs as a result of shipping disruptions risked further adding to cost-of-living pressures and “squeezed business margins”, the ministry said.
While global shipping and logistics companies were adapting to the situation, reduced capacity could lead major companies to prioritise more profitable routes over Oceania as had occurred during the Covid-19 pandemic, “driving up shipping costs for New Zealand firms and leaving some exporters struggling to find suitable shipping”.
Although significant amounts of oil and gas passed through the Red Sea region, global prices remained well down on their pre-conflict peak.
“However while the situation remains volatile, these risks (particularly to price rises at the pump) will continue to be non-trivial, especially given the importance of oil to the global economy and New Zealand’s high degree of energy import dependence.”
NZ International Business Forum executive director Stephen Jacobi told Newsroom the situation in the Red Sea was “naturally worrying” for New Zealand businesses.
The Drewry World Container Index, which measured the price of a range of 40-foot containers across major shipping routes, had increased sharply since the end of 2023 to reach over $6100 in early February – 90 percent higher than the same time last year, and 167 percent higher than pre-pandemic rates.
Jacobi said it was not just exporters who were caught up, with imports of machinery and ingredients for food processing in New Zealand coming through the Red Sea.
While most businesses were not being seriously affected at present, thanks to inventory held in different markets, the problem would become more acute as time went on without a resolution.
“There’s both threats to our supply chains but also … to the global economy that still hasn’t recovered from global inflation and the impacts of Covid.”
Jacobi said the Government could help by working with international partners to address the underlying causes of the shipping disruption, both by providing support to the military operation in the Red Sea and through working towards an early resolution to the Gaza crisis.
