December 19th, 2023
Maersk, Hapag Lloyd, MSC, CMA CGM, Yang Ming and HMM have announced that they are suspending shipping through the Red Sea following attacks on vessels by Houthi rebels. Other liner companies may follow suit sooner than later. (Meanwhile, BP is the first oil major company which has announced circumventing the Suez Canal and many other companies will soon adjust course.)
According to Lloyds List, Xeneta said that liner freight rates from Asia to the Mediterranean jumped 20% higher during the weekend.
It is easy to see why:
Sailing around the Cape of Good Hope to circumvent the Red Sea/Suez Canal route will add 6400 to 6500 nautical miles on the front-haul leg from Asia to East Med. In turn, this should increase the front-haul distance from Asia to East Mediterranean by 45% (trips from China) to 50% (trips from Southeast Asia), adding many days to a round trip.
Liner operators will compensate by adding extra vessels to regular service regular rotations.
In turn, this development will help absorb extra tonnage, limiting overcapacity and boosting liner freight rates.
Charter vessel demand will also benefit, as more charter ships will be called to service for transshipments.
Similarly, front-haul distances from Asia to Northwest Europe will increase by 2,900 nautical miles (from China) to 3,400 nautical miles (from Southeast Asia), adding respectively 22% to 27% time and multiple days to the overall trips.
Nor will this situation favor shipments out of the US East Coast to Asia. Daily transits via the neo-panamax Panama Canal locks have been curtailed in 2023H2 due to the unprecedented drought in Panama. Even though the Panama Canal Authority (ACP) announced on December 15th that it reverses its previous directive (of October 2023) which stipulated that the number of daily transits be reduced to only 18 by February 2024 (down from 22 today and 36 at year start), the situation remains uncertain. In mid-December, the ACP announced that, due to improved water levels, daily transits will increase from 22 today to 24 in mid-January 2024. This adjustment will allow for 7 daily transits via the Canal’s neo-Panamax locks, used almost exclusively by containerships. Regardless, 7 daily transits will fall short for the regular 10 neo-panamax transits normally allowed prior to the enactment of drought-related restrictions. Stricter draft restrictions also apply, dictating lighter cargo for Canal crossing for the larger vessels.
In December, liner companies had rerouted some of their back haul services from Panama via the Suez or via the Cape of Good Hope. The latter will not be affected, but the options of serving the US East Coast out of Asia will become more limited if the Panama drought persists and as the Middle East turmoil continues. Already, the US West Coast ports have regained the market share they lost to the US East Coast ports earlier in 2023 due to uncertainty relating to protracted labor negotiations at the US West Coast ports. US retailers are now concerned with possible US East Coast labor strikes further upsetting shipments to the East Coast if a new labor agreement is not reached by the end of 24Q3 between East Coast port authorities and longshoremen unions.
All these developments may well combine to increase demand for containerships and support liner and charter rates in 2024.
In our December Containership Report (published at the start of the month) we said that absent black swans boxship rates should continue their inexorable downward trend as overcapacity will build in the liner markets during the next two years.
Apparently, Houthi attacks have become a black swan for the liner industry – at least for the short term.
It is anyone’s guess how long this turmoil will last.