As the Houthis continue attacking ships in the Red Sea, Canadian retailers are starting to feel the pinch of longer routes and higher costs—just after surviving the supply-chain snarls of the pandemic.

What’s happening: The Iran-backed, Yemen-based armed group known as the Houthis has launched more than 30 attacks on ships in the Red Sea since mid-November in what it said is a protest against Israel’s counteroffensive in Gaza. The U.S. and U.K.—with the support of Canada and other countries—have responded with military action.

A critical waterway: The Red Sea is the 1,930-kilometre body of water between the Suez Canal and the Arabian Sea that effectively links Europe to Asia. Typically, about 12 to 15 per cent of global trade passes through it.

With the ongoing threat, though, major shipping companies have rerouted, adding days to their journeys. Last month, data showed nearly two-thirds of ships coming into the Port of Halifax were running late. Freight traffic in the Red Sea is 80 per cent lower than normal, and rates for a standard container on alternate routes have soared.

Businesses at risk: European and North American retailers could see inventory levels suffer, Morningstar DBRS analysts said in a note, calling the situation “modestly negative.” 

Companies selling appliances, bulk furniture, mass-market apparel and general merchandise are most at risk, they said, because they tend to rely on Asian manufacturing. Two such retailers that do business in Canada—Swedish furniture-seller Ikea and U.K.-based clothing company Next—warned about supply issues early on. 

The Canadian fallout: If the conflict continues, BMO Capital Markets analyst Simeon Siegel said in a note, retailers will need to address the impacts in their full-year guidance. That includes Vancouver-based athleisure company Lululemon, which he said counts among companies with “the largest exposure” to manufacturing and sourcing in Southeast Asia.

Lululemon did not respond to a request for comment.

Canada’s retailers are now seeing higher prices for container shipments, said Retail Council of Canada national spokeswoman Michelle Wasylyshen. Those hikes remain below highs experienced during the pandemic and Russia’s invasion of Ukraine, she noted, “but it is starting to creep up.”

What’s next: Most Canadian retailers have yet to comment on the conflict’s impact as it began very late in, or after, their most recent reporting periods.

Dollarama has not experienced any significant issues because most of its imported goods move through a different shipping route, said spokesperson Lyla Radmanovich, but it will “continue to monitor the situation.”

Still, many of these firms are bound to face questions in their next earnings calls, as e-commerce giant Amazon did at the start of February.

CFO Brian Olsavsky assured analysts the company is “mindful of the geopolitical issues around the world, especially … in the supply chain and how that might impact shipments both to the U.S. and Europe.” Amazon is working hard to mitigate fallout for consumers, he said, and the situation is “not a material impact” for its first-quarter guidance.