Red Sea attacks set to lift freight rates as ships avoid Suez Canal
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Two major freight firms said they would avoid the Suez Canal as Houthi militants in Yemen stepped up their assaults on commercial vessels in the Red Sea.
PHOTO: AFP
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TOKYO – Shipping stocks in Asia soared on expectations that disruptions to Red Sea routes due to militant attacks will push up freight rates.
Two major shipping companies including MSC, the world’s biggest container shipping line, said on Dec 16 that they would avoid the Suez Canal
Yemen’s Iranian-backed Houthi movement has been attacking vessels in response to the Gaza war, on a route that allows East-West trade, especially of oil, to use the Suez Canal to save the time and expense of circumnavigating Africa. War risk insurance premiums have risen as a result.
The threats to carriers around Egypt’s Suez Canal may pressure freight rates from Asia to Europe or to the United States East Coast as ships take alternative, longer routes, according to Bloomberg Intelligence senior analyst Lee Klaskow.
If all trades via the Suez Canal are re-routed, there will be about a 6 per cent effective supply reduction in the global container industry on an annualised basis, Citigroup analysts including Kaseedit Choonnawat estimated in a report.
A.P. Moller-Maersk, the world’s second-largest owner of container ships, told its vessels in the Red Sea area to pause their journeys, following recent attacks on merchant ships by Houthi militants off the coast of Yemen.
Re-routing Suez transits for Asia-Europe trades to around Cape of Good Hope would add 10 to 14 days of travel, the Citi analysts wrote.
The alternative routes would help absorb carriers’ excess capacity, which is expected to rise through 2025, according to Mr Klaskow.
A gauge of Japan’s carriers rose as much as 5.8 per cent on Dec 18, the only industry sector that gained while the broader Topix fell 1.6 per cent. South Korea’s Korea Line Corp and China’s Ningbo Ocean Shipping both rose as much as 10 per cent.
“Given ships need to detour and the news would raise freight rates, it is positive to shipping stocks,” said Mr Shawn Oh, an equity trader at NH Investment and Securities in Seoul.
Nippon Yusen KK was the top performer in Japan’s Topix as it rose as much as 6.6 per cent, the most in five months, while its peers Mitsui OSK Lines gained 5.6 per cent and Kawasaki Kisen Kaisha advanced 6.5 per cent.
In China, companies including Nanjing Tanker Corp, China Merchants Energy Shipping and Cosco Shipping Energy Transportation all rose 8 per cent or more at their peak on Dec 18. BLOOMBERG
