European & African firms face setback in cash flow recovery amid Red Sea crisis

Posted on January 29, 2024

The Red Sea crisis is diverting ship routes from the Suez Canal which poses a risk to the cash flow recovery of European industrial firms.

Extended crisis conditions may raise working capital needs for these companies due to slow transfers of fully manufactured components and products, along with higher shipping costs.

European manufacturers, having reduced stocks in 2023 after supply chain disruptions, expect average free cash flow margins of 1.5% in 2023 and 2024, gradually increasing with order deliveries and facing inflation-driven cost hikes.

In contrast, free cash flow margins for manufacturers in the Middle East and Africa may lag behind other regions due to altered shipping routes and restricted major port options.

Changing ship courses will limit major port choices, increasing the need for recharge services to transport container-stored goods to final destinations.