Nearly a year since attacks on cargo ships in the Red Sea started, the ripple effects on global supply chains have hit fruit exporter Kakuzi PLC hard. 

Kakuzi, a firm listed on both the London Stock Exchange and the Nairobi Securities Exchange, is a major exporter of macadamia and avocado fruits from Kenya to the European market and uses the Suez Canal route in the volatile Red Sea region to reach its market destinations in record time.

In a market update on 26th November by the Board Chairman Nicholas Ng'ang'a, Kakuzi PLC told shareholders and the public that this year's earnings will decrease by over 25 percent, attributable to shipment disruptions bedeviling the Red Sea zone.

"The Red Sea route to our main European markets is effectively closed. The longer journey times, around the Cape," said Mr. Ng'ang'a.

He added, "The anticipated drop in full-year earnings is mainly a result of lower turnover from Avocado exports arising from a lower crop and supply chain disruptions due to the prevailing Middle East geopolitical tensions."

According to logistics heavyweight Maersk, ships continue to use the Cape of Good Hope route to access European and North American markets, an option that is increasingly driving up both transit times and operational costs.

For Kakuzi PLC, the company said it has been incurring "significant quantities of spoilt fruit with low market returns," due to forced usage of the Cape route.

Attacks on ships

Maersk says towards the end of last year, an estimated 12 percent of global trade used the Suez Canal as their primary route, but with persistent attacks on ships in the past 12 months, crossings through the canal have dropped by 66 percent. Data shows that carriers are increasingly opting for longer voyages around South Africa.

“In today's shipping, anybody who shoots at a ship is shooting at the world,” Jan Hoffman, Head of Trade Logistics at the United Nations Conference on Trade and Development (UNCTAD) told Beyond the Box. “The situation continues. The spare capacity has been eaten up. And all routes are affected, not only the ones going through the West, unfortunately.”

The World Bank figures show that by the end of March 2024, cargo volumes through Suez Canal and Bab El-Mandeb Strait had contracted by 50 percent. At the same time, ships opting for the alternative Cape of Good Hope route reported 100 percent increase in navigation.

Kakuzi PLC said the profit warning notice was informed by available trading information, market forecasts, and the unaudited results to 31st October 2024.

"We, therefore, wish to report that our net earnings for the year ending 31st December 2024 are expected to be more than 25 percent lower than that reported for the year ended 31st December 2023," the Board Chairman noted.

In a May 2024 update, the World Bank noted that longer shipping routes by exporters/importers are posing negative impacts on businesses including, increased travel distances for cargo and tankers by up to 53 percent.

Higher fuel usage

The longer travel, the World Bank added, is causing a rise in CO2 emissions due to higher usage of fuel by the ships. 

"From an economic perspective, the crisis has led to soaring freight rates and shipping insurance costs, contributing to inflation and negatively affecting regional and international shipping economies," the World Bank explained.

What's more, Maersk says, "With ships tied up on extended voyages, the number of ships available to transport cargo is significantly reduced. It is estimated that available capacity was down between 15 percent and 20 percent in the second quarter of 2024."

In a positive light, however, Kakuzi noted that its macadamia business is registering strong growth.  "Our order books are full, and the price level is almost double this time last year." 

This strong performance of the nuts units was, however, unable to turn the tide for the losses suffered due to long shipping times for avocado consignments.

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