A wave of attacks on ships plying the waters of the Red Sea is forcing shippers to divert their ships, making them take longer voyages that increase their carbon emissions.
For companies struggling to account for and reduce the climate-warming emissions associated with their businesses, these diverted trips add to the challenge. Many companies had already revamped their supply chains as they dealt with disruptions from COVID-19, extreme weather risks, trade protectionism that forced them to switch suppliers, and rising freight costs.
“Whether it’s the Red Sea, or the war in Ukraine, or COVID or Brexit before that, we’ve had so many discontinuities in the last decade,” said Archana Jagannathan, who leads sustainability in Europe for PepsiCo. She said the company will have to redouble efforts to reduce emissions if it hopes to meet its 2030 and 2040 climate pledges.
Reporters spoke to executives from five major consumer companies and analyzed data from 30 major corporate sustainability reports to show that third-party carbon emissions have generally increased in recent years due to supply chain disruptions.
Since attacks by Yemen’s Houthi rebels in the Suez Canal began last year, hundreds of ships – powered by heavy fuel oil – have been diverted around the Cape of Good Hope, making each journey hundreds of kilometers long. Those extra kilometers result in higher emissions.
For example, the journey of a large container ship from Shanghai to Hamburg emits 38% more CO2, or 4.32 million kilograms, if it goes around Africa instead of through the Suez Canal, according to LSEG data.
The tracking platform ShipsGo estimates that more than 600 ships have been diverted since the attacks began in October.
According to ShipsGo, it is not unusual for ships to take longer than expected even on routine days. But delays and CO2 emissions increased significantly after diversions due to the Red Sea conflict. In December, when ships began rerouting, average transit times increased by around 50%, leading to a similar increase in CO2 emissions.
Delays and emissions began to normalize in the following months, which, according to ShipsGo, could be a result of the shipping sector adapting to the changed situations, such as choosing alternative shipping methods or recording expected journey times that are more in line are with longer routes.
The diversions “are not planned,” Arsenio Dominguez, head of the International Maritime Organization, said at a news conference last month, and the additional carbon emissions are “not being emitted because we want them to be.”
The tracking data for the more than 6,000 containers originally loaded between December 15, 2023, when the first service suspension began, according to ShipsGo, and March 31, 2024, shows how the diversion led to delays as ships carrying some shipments were further diverted . postponed for weeks.
Maersk has said delays and backlogs are likely to continue into the second half of the year.
What is at stake?
For companies that depend on the receipt or distribution of goods by sea, these longer sea journeys pose a potential threat. While a company’s internal operations and energy use determine so-called Scope 1 and Scope 2 emissions, its supply chain and distribution activities fall under Scope 3 emissions – a classification developed by the non-profit think tank World Resources Institute.
Reporters examined the latest sustainability reports from 30 of the world’s largest companies and found that 10 of them reported year-on-year higher Scope 3 emissions in 2022 or 2023, largely related to shipping. The Red Sea delays could make this worse.
Officials at some of these companies said failure to reduce overall emissions could risk alienating consumers, losing investors or jeopardizing their ability to secure sustainable financing. They may also face shipping charges, which may be approved soon.
Denmark-based dairy company Arla Foods, which makes Lurpak butter, is already juggling higher costs. “As a result of the Red Sea conflict, our emissions have also increased 1-1 with the cost of shipping,” said Mia Høj Bredal, the company’s head of supply chain sustainability.
Reporters found many examples of detours in the tracking data, with the most common for ships circumnavigating the entire African continent – adding weeks to the journey – rather than taking the shortcut to the Suez Canal between the Mediterranean Sea and the Red Sea.
The Red Sea crisis has already increased the cost of shipping allowances in the European Union by a third, as the average 30-day journey becomes a 40-day journey, says Chris Rogers, who heads the Supply Chain Research team within S&P Global.
Some ships traveling from Asia to North America chose to avoid the Middle East and the Red Sea entirely, instead sailing straight to the Cape of Good Hope and around the tip of Africa.
Other ships coming from the north headed towards the Suez Canal, reaching halfway to the Red Sea before turning back. This added even more time to those trips.
Costs at sea
Shipping, which is responsible for 2.9% of global carbon emissions, has largely escaped taxation because the high seas are not under the jurisdiction of any single government.
The Houthi military helicopter flies over the Galaxy Leader cargo ship in the Red Sea in this photo released on November 20, 2023. | Houthi Military Media / via REUTERS
But for companies, the longer ship journeys translated into higher costs. Nestle CEO Mark Schneider said in February that the world’s largest food company was seeing “some pressure” on its freight costs because of the detours.
Despite higher shipping costs, slower travel times have helped both San Francisco-based clothing company Levi Strauss & Co. as the British multinational Reckitt has led to transporting some of their goods by plane or truck – both of which are significantly more climate polluting. then shipping. Trucking is about 10 times more carbon-intensive than shipping, while long-distance air freight generates 47 times as many emissions as shipping per ton-mile, according to MIT research.
More than 20 countries and regional organizations now support proposals for an emissions tax on shippers, saying it could generate more than $80 billion a year in funds that could be put into developing low-carbon fuels. A tax on shipping costs could also lead to higher shipping costs for companies.
The damage from ship emissions is caused not only by global warming, but also by the sulphates and black soot that billow from a ship’s chimney. These air pollution particles mean that shipping emissions can sometimes be observed from space. ‘Ship tracks’ are created by water vapor condensing around the particles.
The MODIS instrument aboard NASA’s Terra satellite captured this image on June 4, 2021. Some of the crisscrossing clouds stretch hundreds of miles from end to end.
With so many disruptions in the global supply chain, some companies told Reuters they are looking to localize more of their operations by using suppliers closer to home, known as “nearshoring.”
“It has become much clearer how urgent it is that we collectively reduce emissions,” said Thomas Lingard, who leads global environmental policy and strategy at Dove soap maker Unilever. “The kind of changes you need are much more drastic.”
For example, multinational food company Kraft Heinz has built capacity among local suppliers in Egypt and Eastern European operations to reduce overall emissions, “a significant portion” of which come from its transportation and distribution network.
This nearshoring also reduces supply risk and leads to better prices, the Chicago-based company said in its 2023 sustainability report. This year, the Pudliszki factory will source almost all of the tomato paste used in its products from dozens of small farms within a 60-mile radius kilometers from the Polish city.
When reporters examined the more than 6,000 delayed containers by destination, it became clear that the longest delays – as a percentage of the total journey – were for ships bound for a port on the Mediterranean or in the Middle East, on either side of the Suez. Channel. Containers on longer voyages between Asia and North America tended to experience fewer major delays.
Investment risk
Several top investors said they would challenge or engage with companies that say they have not met their Scope 3 emissions targets due to supply chain issues such as the Red Sea crisis.
“Blaming transport for missing Scope 3 targets seems like a possible way out to me,” said Eric Pedersen, head of responsible investing at Nordea Asset Management. Some portfolios with climate-focused investment strategies may consider letting go of stocks after ‘back-to-back disappointments’.
While experts agree that failing to meet emissions targets poses a threat to business, it is a threat that many companies are not yet concerned about.
Major global freight forwarder Unique Logistics says its hundreds of business customers aren’t asking about carbon emissions at all, but instead want to cut unexpected costs from their supply chains.
“We have not had any major customers specifically request certain shipping services or a certain choice of shipping companies based on environmental factors,” said Sunandan Ray, CEO of Unique Logistics. “The first priority for everyone still remains costs.”
