LONDON, May 28 (Reuters) - A surge of attacks on ships

traveling the waters of the Red Sea is forcing shippers to

reroute their vessels, sending them on longer journeys that

drive up their carbon dioxide emissions.

(Read this story in a graphic here.)

For companies struggling to account for - and lower - the

climate-warming emissions associated with their businesses,

these rerouted journeys add to the challenge. Many companies had

already revamped their supply chains as they navigated COVID-19

disruptions, extreme weather risks, trade protectionism that

forced them to change suppliers, and rising freight costs.

"Whether it's the Red Sea, or the war in Ukraine or COVID or

Brexit before that, we've had so many discontinuities in the

last decade," said Archana Jagannathan, who leads sustainability

in Europe for PepsiCo ( PEP ). She said the company will need to

double down on efforts to cut emissions if it hopes to meet its

2030 and 2040 climate pledges.

Reuters spoke to executives from five large consumer

companies and analyzed data from 30 sustainability reports of

major firms to show that third-party carbon emissions have

broadly been on the rise in recent years amid supply chain

disruptions.

Since the attacks by Yemen's Houthi rebel forces began in

the Suez Canal last year, hundreds of ships - powered by heavy

fuel oil - have been diverted around the Cape of Good Hope,

adding hundreds of kilometers (miles) to each journey. Those

extra kilometers (miles) are resulting in higher emissions.

A large container ship's journey from Shanghai to Hamburg,

for example, emits 38% more CO2, or 4.32 million kilograms, if

it goes around Africa instead of through the Suez Canal,

according to data pulled for Reuters by LSEG.

The tracking platform ShipsGo estimates that more than 600

vessels have been rerouted since the attacks began in October.

It is not uncommon for vessels to take longer than expected

even on routine days, according to ShipsGo. But delays and

carbon emissions increased significantly after diversions due to

the conflict in the Red Sea. In December, when ships started

rerouting, average transit times increased by around 50%,

leading to a similar increase in carbon emissions.

Delays and emissions started to normalise in following

months, which ShipsGo says could be a result of the shipping

industry adapting to the changed situations, such as choosing

alternate shipping methods, or logged expected journey times

more in line with longer routes.

The reroutings "are not planned," International Maritime

Organization chief Arsenio Dominguez told a news conference last

month, and the additional CO2 release is "not emitted because we

want to."

The tracking data for the more than 6,000 containers

originally loaded between Dec. 15, 2023, when the first service

suspension started according to ShipsGo, and March 31, 2024,

shows how the rerouting led to delays, as ships were further

redirected with some shipments delayed for weeks.

Maersk has said the delays and backlogs will

likely continue into the second half of the year.

WHAT'S AT STAKE?

For companies that depend on receiving or distributing goods

by sea, these longer shipping journeys pose a potential threat.

While a company's in-house operations and energy use make up

what's called Scope 1 and Scope 2 emissions tallies, its supply

chain and distribution activities go into its Scope 3 emissions

- a classification developed by non-profit thinktank the World

Resources Institute.

Reuters examined the most recent sustainability reports for

30 of the world's biggest companies, and found that 10 reported

higher year-on-year Scope 3 emissions in 2022 or 2023, largely

tied to shipping. The Red Sea delays could make that worse.

Speaking to Reuters, officials from some of those companies

said failing to cut overall emissions could risk alienating

consumers, losing investors, or jeopardising their ability to

secure sustainable financing. They also could face shipping

taxes, which may soon be approved.

The Denmark-based dairy company Arla Foods, which makes

Lurpak butter, is already juggling higher costs. "Due to the

conflict in the Red Sea, our emission has also gone up equally

1-1 with the cost" of shipping, said the company's supply chain

sustainability chief, Mia Høj Bredal.

Reuters found many examples of detours in the tracking data,

with the most common for ships to go around the entire African

continent - adding weeks to the journey - rather than taking the

Suez Canal shortcut between the Mediterranean and the Red Sea.

The Red Sea crisis has already pushed up the cost of

European Union shipping emissions permits "by a third" as the

typical 30-day voyage becomes a 40-day trip, said Chris Rogers,

who manages the Supply Chain Research team within S&P Global.

Some vessels traveling from Asia to North America opted to

avoid the Middle East and Red Sea completely, instead heading

straight for the Cape of Good Hope and around the tip of Africa.

Other vessels coming from the north headed for the Suez

Canal and made it halfway through the Red Sea, before turning

back. This added even more time to those journeys.

COSTS AT SEA

Shipping, which accounts for 2.9% of global CO2 emissions,

has largely escaped taxation because the high seas are not in

the jurisdiction of any one government.

But for companies, the longer ship journeys translated to

higher costs. Nestle CEO Mark Schneider said in

February that the world's biggest food company was seeing "some

stress" on its freight costs due to the detours.

Despite the higher shipping costs, the slower journey times

led both San Francisco-based Levi Strauss & Co. ( LEVI )

clothing company and Britain's multinational consumer goods

company Reckitt to transport some of their goods by air

or by truck - both of which are significantly more climate

polluting than shipping. Truck journeys are roughly 10 times

more carbon intensive than shipping, while long-haul air freight

generates 47 times the emissions as shipping per ton-mile,

according to MIT research.

More than 20 countries and regional organisations are now

backing proposals for an emissions levy on shippers, saying it

could raise more than $80 billion a year in funds that can be

put into developing low-carbon fuels. A levy on shipping could

also lead to higher shipping costs for companies.

The harm from shipping emissions does not come from

planet-warming CO2 alone, but also from the sulfates and black

soot that billow out from a ship's smokestack. Those airborne

pollution particles allow shipping emissions to sometimes be

seen from space. "Ship tracks" materialize as water vapor

condenses around the particles.

The MODIS instrument aboard NASA's Terra satellite captured

this image on June 4, 2021. Some of the criss-crossing clouds

stretch hundreds of kilometers from end to end.

With so many disruptions in the global supply chain, some

companies told Reuters that they are looking to localize more of

their operations by using suppliers closer to home, sometimes

called "nearshoring."

"It's become much more apparent how urgent it is that as a

collective we get emissions down," said Thomas Lingard, who

leads Dove soap maker Unilever's ( UL ) global environmental policy and

strategy. "The kinds of changes that you need are much more

transformational."

Multinational food company Kraft Heinz ( KHC ), for

instance, has been building capacity with local suppliers in

Egypt and Eastern European operations in order to reduce its

overall emissions, "a significant portion" of which comes from

its transportation and distribution network.

This nearshoring also lowers the supply risk and leads to

better prices, the Chicago-based company said in its 2023

sustainability report. This year, its Pudliszki factory will

source nearly all of the tomato paste used in its products from

dozens of small farms within 60 kilometers (40 miles) of the

Polish town.

When Reuters examined the more than 6,000 delayed containers

by destination, it became clear that the longest delays - as a

percentage of the overall journey - were for ships heading to a

port on the Mediterranean or in the Middle East, on either side

of the Suez Canal. Containers on longer journeys between Asia

and North America tended to have less significant delays.

INVESTMENT JEOPARDY

Several top investors told Reuters that they would challenge

or engage with companies that say they missed their Scope 3

emissions targets because of supply chain troubles like the Red

Sea crisis.

"Blaming transportation for missing Scope 3 targets sounds

like a potential cop-out to me," said Eric Pedersen, Nordea

Asset Management's head of responsible investments. Some

portfolios with climate-focused investment strategies could

consider letting stocks go after "successive disappointments."

While experts agree there is a business threat from missing

emissions targets, it is a threat that many companies are not

yet concerned about.

Major global freight forwarder, Unique Logistics, said its

hundreds of corporate clients were not asking about carbon

emissions at all, but instead wanted to cut unexpected costs

from their supply chains.

"We have not yet had major customers who specifically asked

for certain vessel services or a certain choice of shipping

lines based on environmental factors," Unique Logistics CEO

Sunandan Ray said. "The first priority for everyone still

remains cost."