Risks to container ships and their crews are escalating by the day within the Red Sea — and with that rising danger comes the prospect of upper shipping rates.
Amid Friday’s attacks and growing evidence of route delays and diversions, the share price of ocean carrier Zim (NYSE: ZIM) spiked 18% in greater than quadruple average trading volume. Shares of Hapag-Lloyd surged 16%. Maersk’s stock closed up 8%.
It’s one more example of how bad things — wars, viruses, weather disasters — can equate to potential upside for shipping, or at the very least, the perception of future upside.
“Roughly 30% of container volumes transit the Suez Canal and make up about half the traffic through the canal by weight,” said Stifel analyst Ben Nolan on Friday. “Rate increases are sometimes announced but not normally successful in a loose market. Nevertheless, if ships do avoid the Suez Canal, the market could easily tighten enough to support the speed increase.”
Attacks goal ships of Maersk, Hapag-Lloyd, MSC
More container ships are expected to divert to the for much longer route around Africa’s Cape of Good Hope, given the threat on the Bab-el-Mandab Strait within the Red Sea. The massive query is whether or not current ad hoc ship diversions will translate into full-scale service reroutings.
Longer routes require more ships to take care of weekly service, which may offset a number of the current rate pressure attributable to newbuilding deliveries.
Yemen’s Houthi rebels hit the OOCL-chartered vessel Number 9 on Dec. 3. On Thursday, the Houthis fired a missile on the Maersk Gibraltar. They attacked Hapag-Lloyd’s Al Jasrah and Mediterranean Shipping Co.’s MSC Palatium III on Friday.
“Following the near-miss incident involving Maersk Gibraltar yesterday and one more attack on a container vessel today, we’ve got instructed all Maersk vessels in the realm sure to go through the Bab al-Mandab Strait to pause their journey until further notice,” said Maersk.
Hapag-Lloyd has also paused transits through the strait, in accordance with The Wall Street Journal.
Each Asia-Europe and Asia-US markets exposed
The Asia-Europe and Asia-U.S. trades are the world’s two largest container shipping markets. The Asia-Europe market is directly affected by security issues on the Bab al-Mandab Strait, and the Asia-U.S. trade is way more affected now than it might be normally.
Panama Canal transit restrictions attributable to low water levels began heavily curtailing transits of larger container ships in November. In response, multiple Asia-U.S. services have already diverted from Panama to the Suez Canal.
Now, a few of those ships that diverted to the Suez Canal may divert yet again, to the Cape of Good Hope.
The voyage between Shanghai and Recent York is 17% longer via the Suez Canal than the Panama Canal, and 37% longer via the Cape of Good Hope than the Panama Canal, in accordance with distance calculator Sea-Distances.org.
Some ships within the Asia-Europe trade will even divert across the Cape. The gap between Shanghai and Rotterdam, Netherlands, is 32% longer via the Cape of Good Hope than via the Suez Canal.
The voyage from Shanghai to Rotterdam is definitely longer going westward and using the Cape than going eastward and using the Panama Canal, traversing each the Pacific and Atlantic oceans.
Asia-Europe rates rising in December
The situation for container lines looked particularly dire only a couple of weeks ago.
Many Asia-Europe annual contracts renew on Jan. 1. Spot rates were exceptionally weak in October and November. If spot rates didn’t improve very soon, annual contracts would likely reset much lower.
The excellent news for ocean carriers is that Asia-Europe spot rates are up significantly this month, even prior to potential upside from the most recent events within the Red Sea. Spot rates are still relatively weak, but they’re much improved from October and November, enhancing carriers’ negotiating hand in contract talks.
The Freightos Baltic Day by day Index (FBX) for China to the Mediterranean has risen 73% from late October through Thursday, to $2,367 per forty-foot equivalent unit. The FBX China-North Europe Index is at $1,461 per FEU, up 37% over the identical period.
The Drewry World Container Index (WCI) for Shanghai to Genoa, Italy, has risen 44% between late October and the week ending Thursday, to $1,697 per FEU. The WCI assessment for Shanghai to Rotterdam is at $1,442 per FEU, up 26%.
The more container ships that divert across the Cape of Good Hope, the higher the prospects for each spot and contract rates within the Asia-Europe market — in addition to the trans-Pacific market, courtesy of Panama’s travails.
Container-ship lessors could also profit
It’s not only container freight rates that stand to realize from Red Sea disruptions. The necessity for more ships to serve longer routes could also support future demand and leasing rates within the ship charter market.
“The problematic situation within the Red Sea and the resulting ad hoc vessel diversions to the Cape route haven’t yet led to a notable increase in tonnage demand,” said Alphaliner on Tuesday. “[But] should these problems proceed into 2024, they may definitely boost tonnage demand, since carriers may have to factor these longer trips into their schedules and fleets.”
Commenting on ship-chartering prospects for next yr, Alphaliner said, “The outlook for the market in 2024 is clearly uncertain, considering the massive variety of newbuildings of all sizes attributable to hit the water.
“Various trading disruptions resembling the water-level problems on the Panama Canal, with reduced day by day ship transits, and terror attacks within the Red Sea could … play a task in reducing overcapacity, with carriers having to make use of additional ships to bypass the problematic areas.”
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