‘Signs Of Disruption’

SKF Impacted By Red Sea Piracy

This image provided by the U.S. Navy shows an aircraft launching from USS Dwight D. Eisenhower (CVN 69) during flight operations in the Red Sea, Jan. 22, 2024. The U.S. and Britain have struck more than a dozen Houthi targets in Yemen. The strikes on Saturday, Feb. 24, answer a recent surge in attacks by the Iran-backed militia group on ships in the Red Sea and Gulf of Aden. The U.S. fighter jets launched from the USS Dwight D. Eisenhower aircraft carrier, which is currently in the Red Sea. (Kaitlin Watt/U.S. Navy via AP)

Attacks on ships in popular Red Sea shipping lanes are having an economic impact on at least one company with local ties.

Houthi rebels in Yemen, seeking to stop Israel’s offensive against Hamas in Gaza, are attacking cargo ships plying the waters connecting Asia with Europe and the United States, forcing traffic away from the Suez Canal and around the tip of Africa. The disruption is causing delays and driving up costs — at a time when the world has yet to vanquish a resurgence of inflation. The Houthis have launched at least 57 attacks on commercial and military ships in the Red Sea and Gulf of Aden since Nov. 19, and the pace has picked up in recent days.

SKF, which owns the SKF plant in Falconer, has been disrupted by the ongoing attacks in shipping lanes in the Red Sea, according to Rickard Gustafson, SKF CEO. The attacks have prompted air strikes by the United States and Great Britain on Houthi targets in Yemen while there will also be an increased naval presence in the area.

“Clearly, we will also need to do some tactical maneuvers to ensure that we manage through the situation that has been developed in the Red Sea,” Gustafson said during a recent conference call with investor analysts. “We all know that the Red Sea is one of the largest passages for world trade, and we are not immune to that. So, what we are doing is, of course, we work together with our customers. We look into alternative transportation routes. And we also have to look into, do we need some safety buffers in terms of inventories to ensure that we keep our customers unharmed from this development? So, strategically, we continue to drive our agenda forward. Tactically, we’ll be doing a lot of maneuvering as things develop in that region.”

Those concerns were echoed by Cummins officials during another conference call with investor analysts recently. Cummins’ logistics costs have been trending downward, according to Mark Smith, Cummins CFO.

“Yeah, I would say in the near term, there’s a little bit of increased anxiety about events in the Middle East and some shipping delays and some reversing of the trend we’ve seen in logistics costs, which have been actually going down for us, Jerry. I don’t want to overstate that, it’s obviously a little bit of a concern in the near term,” Smith said.

On Saturday, the U.S. and Britain struck 18 Houthi targets in Yemen, answering a recent surge in attacks by the Iran-backed militia group on ships in the Red Sea and Gulf of Aden, including a missile strike this past week that set fire to a cargo vessel. According to U.S. officials, American and British fighter jets on Saturday hit sites in eight locations, targeting missiles, launchers, rockets, drones and air defense systems. The officials spoke on condition of anonymity in order to provide early details of an ongoing military operation. This is the fourth time that the U.S. and British militaries have conducted a combined operation against the Houthis since Jan. 12. But the U.S. has also been carrying out almost daily strikes to take out Houthi targets, including incoming missiles and drones aimed at ships, as well as weapons that were prepared to launch.

Greece on Monday formally agreed to participate in and lead a European Union maritime security operation in the Red Sea to protect commercial shipping from attacks by Houthi militants in Yemen. A security committee headed by Prime Minister Kyriakos Mitsotakis ordered the participation of a Greek frigate in the Aspides operation – named from the Greek word for “shield” – that was launched last week.

The mission will be run from a military base in Larissa, in central Greece, under the command of Greek navy Cdre. Vasilios Griparis.

Greece, a major commercial shipping power, has been directly affected by the Houthi attacks. The port of Piraeus, near Athens, reported a 12.7% drop in activity at its container terminal in January, on an annual basis.

Gustafson told investor analysts during the company’s year-end financial statement conference call that continued disruptions in the region are something SKF officials are keeping an eye on as the year progresses.

“And if the world becomes even more volatile and we do see now signs of disruption in the supply chain due to the development in Red Sea, of course, that is something that we also need to think through how we’re going to manage to ensure that we don’t have to sit with the entire cost for that problem,” Gustafson said. “So, it will be a continuation of what you would already see in 2023 is what you should expect in 2024.”

The Associated Press contributed to this report.


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