- Next warns of shipment delays
- Red Sea disruptions affect supply
- Profit forecast rises, despite risks
Next has issued a warning that product shipments may be delayed if transportation disruptions in the Red Sea persist.
Due to Houthi rebel attacks on vessels in one of the busiest shipping channels, companies have opted to circumvent the region and adopt more extensive routes.
Furthermore, it was stated that early this year, stock deliveries to the United Kingdom were “likely” to be delayed if access “difficulties” persisted.
As the retailer reported higher-than-anticipated sales leading up to Christmas, the warning was issued.
The High Street colossus, which operates approximately 460 stores in the United Kingdom and Ireland, increased its profit forecast for 2024 by 5% to £960 million due to the prosperous holiday season.
However, the company issued a cautionary note regarding “risks” in the supply chain in its trading statement on Thursday.
Global Supply Chains Disrupted
Supply chain disruptions are probable during the initial months of the year, according to the retailer, should challenges with Suez Canal access persist.
As a result of some of the largest shipping companies in the world rerouting voyages away from the Red Sea, global supply chains are experiencing disruptions, and Next is not the first organization to issue a warning about problems receiving commodities and products.
A month ago, the furniture behemoth Ikea announced that it could experience delays in some of its product shipments.
Lord Simon Wolfson, chief executive officer of Next, informed the PA news agency that the disruption could cause stock to arrive in the United Kingdom “two to two and a half weeks later.”
“It will impact on sales if this persists for a long time, but not dramatic levels,” according to him.
In recent weeks, Houthi rebel attacks on commercial vessels in Yemen have prompted numerous companies to avoid one of the busiest shipping lanes in the world. This route passes through the strait of Bab al-Mandab, a 20-mile-wide channel separating the Arabian Peninsula of Yemen and Eritrea and Djibouti on the African side, and then Egypt’s Suez Canal further north.
The Houthi group has expressed its allegiance to Hamas and claimed to be targeting vessels en route to Israel; however, it remains uncertain whether each of the attacked vessels was, in fact, en route to Israel.
Container Ships Diverted for Safety
Nonetheless, several container shipping companies have since diverted vessels to a much longer route around Africa’s Cape of Good Hope and then up the west side of the continent, resulting in shipping delays, due to the assaults and the threat.
Swiss logistics and transportation company Kuehne + Nagel reports that since mid-December, the assaults have caused the diversion of 405 container ships.
According to additional data supplied by Kuehne + Nagel, this corresponds to approximately 78% of the ships that would have been anticipated to traverse the Suez Canal route on average during that time period.
Suez Canal transit is responsible for approximately 30% of global container traffic; therefore, the diversion represents approximately 23.5% of total global container traffic.
According to Chris Long, director of intelligence for Neptune Port to Port Group, a private maritime security firm operating in the Red Sea, protecting vessels from assaults is “extremely difficult.”
He stated that there are currently no commercially available systems that can be installed on a container ship to provide protection against the armaments being utilized by the Houthis.
“The primary function of our guards is to reassure the ship’s captain, assist in preparations in case of an attack, and offer guidance on appropriate courses of action.” Vessels are essentially powerless to prevent it.
The disruption has raised concerns that prices in stores may further increase, leading to a rise in container costs for some companies over the past two weeks.
However, Next stated that it intended to maintain zero price inflation for its products compared to the previous year, given that cost price inflation in its products is declining, primarily due to declining factory gate prices.
The consumer environment appears more favorable than it has been for several years, although there are still substantial uncertainties, the High Street mainstay continued.
Prices “would have been falling, but we’re forced to hold them flat” due to the increased National Living Wage driving up wage costs, according to Lord Wolfson’s statement to PA.
Next reported that during the nine weeks ending December 30, sales of full-price items increased by 5.7%, which was significantly stronger than anticipated.
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Former Next buyer and senior lecturer in fashion business at De Montfort University in Leicester, Fiona Bailey, attributed the retailer’s success to “stable leadership” among other things.
“They have been consistently providing the customer with the desired product at an appropriate price for years,” she stated.
In contrast to Next’s strong performance during the holiday season, JD Sports, a retailer of athletic apparel, encountered difficulties and lowered its profit forecasts for the current year.
JD Sports reported that its profits would be as much as £125 million lower than anticipated, due in part to greater price reductions than anticipated, which “reflected more cautious consumer spending.”
JD Sports’s stock fell by over 20% in response to the profit warning.
