Michelin, Tesla and Volvo's European plants slowed by Red Sea attacks

Europe's big assembly lines are starting to creak following attacks on shipping in the Red Sea. As Yemen's Houthi group continues to target vessels it says are linked to Israel, in defiance of U.S. led strikes on their positions, the world's top cargo firms are turning back from the Suez Canal and diverting around whole continents, adding weeks to delivery times. 

Across Europe parts are running short. Carmaker Volvo says it will scale back production in Ghent in Belgium, due to a lack of gearbox components. Tire company Michelin is closing its Spanish factories for the second weekend in a row.

Tesla's 'Gigafactory' just outside Berlin will halt nearly all production for an entire fortnight from January 29 to February 11. The electric car maker cited a lack of components after ships were rerouted around the southern tip of Africa. 

"The armed conflicts in the Red Sea and the associated shifts in transport routes between Europe and Asia via the Cape of Good Hope are having an impact on production in Gruenheide," a Tesla statement said. "The considerably longer transportation times are creating a gap in supply chains."

While the plight of big-name brands might grab the headlines, 23 percent of German GDP is generated by small and medium-sized manufacturers. And the impact on them is a bigger cause for concern.

Uli Brueckner from Stanford University in Berlin says that following Covid and the conflict in Ukraine, this latest crisis could push businesses to the brink. ‌

"Some small or medium-sized enterprises don't have the stamina to survive, because in the short term there's not enough material. They can't get what they need to fulfil their contracts," says Brueckner. 

Away from the car industry, Spanish retail and food industry association Aecoc says the crisis is having a "significant impact" on the manufacturing and distribution of food, textiles and technology products. 

The outlook isn't promising. Shipping giant Maersk says re-routing cargo around Africa adds around 10 days to delivery times, and a million dollars in fuel costs. Worryingly, the company says it expects the disruption to last for the foreseeable future. 

Insurance companies now refuse to underwrite British, Israeli and U.S. vessels which try to traverse the Red Sea.

And to add to the logistical headaches, low water levels caused by drought have reduced traffic through the Panama Canal, further impacting global supply lines. 

For now, The European Union isn't panicking.

"What is happening in the Red Sea is not for the moment apparently creating consequences for energy prices and inflation," according to the bloc's economy commissioner Paolo Gentolini.

"But we think that it should be monitored very closely because these consequences could materialize in the coming weeks," he added.

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