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The Red Sea is a key route for global shipping, directly linked to the Suez Canal, and is essential for guaranteeing freedom of navigation and a major commercial route for international trade. Recently, a number of important shipping companies have announced the suspension of services on the Red Sea route.
As China is more dependent on the Suez Canal for travelling to Europe than any other region, the suspension of the Red Sea-Suez route will have a significant impact on energy storage companies operating in the European market, adding to the imploding European energy storage market.
Lengthening of transport cycle leads to increase in freight rates: The insecurity on the Red Sea route has led to the diversion of vessels around the Cape of Good Hope at the southern tip of Africa, resulting in a significant lengthening of the transport cycle. This has not only increased transit times, but has also led directly to a significant increase in ocean freight costs.
Global Shipping Companies Suspend Vessels to Increase Costs: A number of shipping giants, including Maersk, Hapag-Lloyd, Mediterranean Shipping and Duffy Shipping Group, have announced the suspension of services on the Red Sea routes, which account for 74 per cent of the world's total container capacity. This has led to a shortage of container capacity and a greater likelihood of shipping companies increasing freight rates.
Increased geopolitical risk: The Red Sea has been recognised as one of the most dangerous waters, with higher premiums to be paid by the vessels involved. This has exacerbated the overall rise in maritime transport costs and made global supply chains more vulnerable.
Impact on supply chain turnaround efficiency: China's supply chain turnaround efficiency is directly impacted, especially for shipments destined for North Africa. Suppliers face longer shipping lead times and higher transport costs.
Risk response: Companies should develop a flexible supply chain strategy and consider diversified modes of transport, such as rail and air. At the same time, communicate with customers in advance to negotiate possible adjustments and changes to mitigate potential financial losses.
This year, energy storage companies already faced fierce competition and internal challenges when operating in the European market, and now the market environment has become even more complex due to the suspension of the Red Sea Route, which has led to longer transport cycles and higher freight costs.
To cope with this situation, energy storage companies need to adopt flexible supply chain strategies, find alternative modes of transport and communicate with their customers in a timely manner to ensure that their business can continue to run smoothly in these uncertain times.
However, if we examine from the level of market demand, the "blessing of a blessing in disguise", the crisis may be able to become an opportunity to stimulate the European energy storage market to explode again, a wave of demand exceeds supply.
On 21 December, the shrewd secondary market has been the first to react:
DEYE shares: +10 per cent
Jinlang Technology: +8.35 per cent
Goodway: +10.50%
Womai shares: +11.17 per cent
Renesas Technology: +6.07 per cent
Firstly, the Red Sea plays a crucial role in global trade, particularly in liquefied natural gas (LNG). Europe serves as one of the world's largest LNG import markets, and the Red Sea is the main trade route connecting Europe and Asia. As a result, the Red Sea shipping crisis has had a direct impact on the volume and price of European imports of LNG, which has pushed up energy prices.
Second, the impact of the Red Sea shipping crisis on European energy prices is also reflected in the geopolitical dimension. With the Houthi attacks in Yemen, the security situation of Red Sea shipping has deteriorated, deepening the concerns of European countries about energy supply and increasing the demand for energy independence.
In addition, the Red Sea shipping crisis could have a knock-on effect on global trade. Continued instability in Red Sea shipping would affect global trade, leading to supply chain disruptions and higher commodity prices. In this scenario, energy supplies and prices could be affected by the knock-on effect.
Rising Energy Prices: 2022 has witnessed a continuous rise in energy prices globally, especially in the European region. This has increased the need for households and businesses to find a stable energy supply, and energy storage, which can provide a stable, reliable, and sustainable energy supply, has received widespread attention and importance.
Russia-Ukraine conflict: The Russia-Ukraine conflict has had a significant impact on the European energy market. Due to the disruption of Russia's energy supply to Ukraine, European countries have started to look for alternative sources of energy and have increased their R&D and application of renewable energy and energy storage technologies. This has further fuelled the growth of the European energy storage market.
Policy support: European governments have given strong support to the development of renewable energy and energy storage technologies. The governments have provided policy measures such as tax incentives and subsidies to encourage companies and individuals to invest in energy storage and build energy storage facilities. These policy measures provide a strong guarantee for the development of the European energy storage market.
Technological advancement: with the continuous advancement in technology, the cost of energy storage technology has decreased and efficiency and safety have been significantly improved. This has made the energy storage technology more suitable for large-scale applications and enables it to be used in a wide range of different fields.
Therefore, the reason for the outbreak of the European energy storage market in 2022 is likely to be re-enacted due to the suspension of the Red Sea Route, which may become an opportunity to stimulate the outbreak of the European energy storage market again. Whether or not this piece of history can repeat itself depends on the length and severity of the impact of the suspension of the Red Sea Route.
As Paddy said before, the industry downturn is the perfect time to polish products and improve quality. If this is really an opportunity, there may really be another wave of demand exceeds supply, and only those enterprises that have been fully prepared can seize the opportunity.
