Diageo Forced to Divert Cargo Due to Red Sea Attacks, Conflicts in the Middle East
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Global spirits giant Diageo is facing shipping delays due to increased attacks on vessels in the Red Sea. In recent months, the Irian-backed Houthi rebels have disrupted the shortest sea route between Europe and Asia, the Suez Canal. Chief Financial Officer Lavanya Chandrashekar announced the company has put into place contingency plans to deal with the increased vulnerability of its shipping vessels.
Diageo’s portfolio includes spirits made around the world including Johnnie Walker Whisky in Scotland, Captain Morgan Spiced Rum in the Caribbean and Don Jolio Tequila in Mexico. Disruptions to the company’s ability to effectively ship its products can have devastating consequences for its success.
Conflicts in the Middle East prompted the Diageo to divert vessels to take longer routes around Africa to get to Asia which can take up to two weeks longer. The company was able to act quickly to change course and has said “the costs are manageable.”
“We have the ability to monitor round the clock the position of every ship and every container carrying our cargoes,” says Ewan Andrew, Diageo’s President of Global Supply and Procurement and Chief Sustainability Officer according to the Drinks Business. “We can contact captains directly to assess the most appropriate course as situations require.”
Chandrashekar told Reuters that Diageo has additional inventory in regions like China which can be used in emergencies.
“We always have safety stocks… we live in a volatile world and even if it’s not geopolitical incidents, things can go wrong,” Chandrashekar said
The incidents in the Red Sea have caused Diageo to reassess its safety stock and there are plans to increase the quantities in case of any disruptions to shipments.
The Middle East has seen a downturn in alcohol sales since the Israel and Palestinian conflict reignited following the Hamas terrorist incident in October. Chandrashekar and CEO Debra Crew noted the main impact on trade appeared to be In Lebanon which is usually a big Scotch market.
Diageo seems prepared to handle the situation but a loss of sales could still result in a decline of confidence with the company’s shareholders.
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