After multiple attacks, shipping risks in the Red Sea have intensified. The Suez Canal, the “major artery” of shipping, is at risk of closure. The international shipping industry is facing huge challenges, and the global supply chain may be affected.
According to a report by Xinhua News Agency on December 17, four international shipping companies have successively announced the suspension of navigation in the Red Sea due to the recent attacks by Yemeni Houthi armed forces on many ships while sailing in the Red Sea waters. The German shipping company Hapag-Lloyd, the owner of the Jesla, announced on the 15th that it would suspend all container ship transportation through the Red Sea from now until the 18th. Denmark’s Maersk Line also announced on the same day that it would suspend all container ship transportation through the Bab el-Mandeb Strait and the Red Sea. Mediterranean Shipping Company and France’s CMA CGM require their cargo ships to suspend sailing in the Red Sea and avoid the Suez Canal route on the 16th.
On November 20, a Hapag-Lloyd container ship. Image source: Xinhua News Agency
The reason why the shipping giant made the above decisions at the same time is related to the tense maritime security situation in the Red Sea region.
Houthi armed forces have repeatedly attacked ships in the Red Sea
Several ships made emergency U-turns
Yemen’s Houthi armed forces issued a statement on the 15th saying that the organization launched missiles at the “Alanya” container ship and the “Palatiyum 3” container ship bound for Israel. The statement said that the Houthis will continue to block all ships heading to Israel until supplies needed by the people of the Gaza Strip arrive.
According to the U.S. Central Command, the Houthi armed forces launched two ballistic missiles during the attack, one of which hit the Liberian-flagged container ship “Paratyum 3” in the Bab el-Mandeb Strait. The “Alanya” was sailing north in the southern part of the Red Sea on the 15th. The Houthi armed forces threatened to attack the ship and demanded that it turn around and sail south. In another attack that day, a Houthi armed drone hit the Liberian-flagged ship Jesra in the Bab el-Mandeb Strait in the southern Red Sea.
The Red Sea connects to the Mediterranean through the Suez Canal and to the Gulf of Aden through the Bab el-Mandeb Strait, thus connecting the Atlantic and Indian Oceans. It has a very important strategic location and is one of the busiest shipping routes in the world. Public data shows that 12% of the world’s trade transportation passes through the Red Sea region.
According to Jiemian News on December 17, quoting the shipping media “Xinde Maritime”, after Maersk and Hapag-Lloyd announced the above-mentioned suspension of sailings, ships that were originally going to pass these routes need to re-route. A report from “Sinde Maritime” shows that many ships have made an emergency U-turn before arriving at the Bab el-Mandeb Strait. If the ships are diverted to the Cape of Good Hope in Africa, long-distance sailing will significantly reduce market capacity, the number of shipping days will increase, and transportation costs will also increase. will rise sharply.
The industry is worried that if the situation in the region worsens further, the detour or suspension of ships will have a great impact on the global supply chain. At the beginning of the month, Linerlytica, an analysis agency for the container market, released a report stating that the increased probability of attacks on ships in the Red Sea may cause 30% of the container fleet to need to be diverted.
Since the outbreak of the new round of Palestinian-Israeli conflict, the Houthis have repeatedly attacked targets in the Red Sea using missiles and drones. U.S. Central Command stated that “the Houthis’ actions pose significant risks to international shipping.” Analysts believe that if tensions in the Red Sea and its surrounding waters intensify and international shipping continues to be disrupted, the international supply chain will inevitably be impacted. Analysts believe that the Houthi armed forces’ attacks on international shipping will increase the cost of cargo transportation security, thereby raising commodity prices.
This is the Israeli “Iron Dome” air defense system trying to intercept rockets taken in Jerusalem on the evening of December 15 (video screenshot).
Image source: Xinhua News Agency
In addition to attacking maritime targets, the Houthi armed forces in Yemen are also constantly launching long-range strikes in Israel. Ahmed Rafiq Awad, a professor at Palestinian Al-Quds University, pointed out that armed groups in Yemen, Lebanon and Iraq are increasingly involved in the conflict. “The Houthi armed forces’ attacks on merchant ships in the Red Sea have aroused concerns in the United States and other Western countries. Israel intends to join forces with relevant countries to patrol the Red Sea. These have increased the risk of conflict spillover.” The British “Financial Times” published an article saying that the most dangerous situation is A regional all-out war broke out, involving the countries in the region and the United States.
The Panama Canal is still blocked
Expert: Ocean freight will rise sharply
At the same time, another shipping artery, the Panama Canal, the “main artery of global shipping”, continues to have navigation difficulties caused by drought, and many ships can only choose to bypass it. According to the Panama Canal AuthorityAccording to data released by the ACP, the number of ships passing through the canal in November was 783, a decrease of 22% from October. It is expected that the navigation volume will be further reduced in December and January 2024.
In order to give priority to transiting the Panama Canal, one company even bid for nearly US$4 million for the right to give priority to transiting the Panama Canal. The company would also have to pay hundreds of thousands of dollars in regular shipping fees based on Panama Canal rates.
Faced with the current unoptimistic situation of Red Sea shipping and the Panama Canal, the industry is worried that global shipping will undergo major changes. This may lead to the compression of shipping capacity put into the market, a significant increase in shipping costs, the global shipping industry may fall into chaos, and the stability of the supply chain will be greatly reduced.
With Christmas approaching, transportation has entered its peak season. In addition, shipping companies have recently increased freight rates through various channels. The freight rates in the current shipping market have shown a significant upward trend. Data released by the Shanghai Shipping Exchange on December 16 showed that freight rates in the current European and American route markets have increased, driving the composite index to rise. On December 15, the Shanghai Export Container Comprehensive Freight Index released by the Shanghai Shipping Exchange was 1,093.52 points, up 5.9% from the previous period, with European routes and North American routes seeing the largest increases.
Analysts at the Norwegian analysis agency Xeneta predict that, depending on the scale and duration of the disruption to the Suez Canal route, shipping freight rates may increase by as much as 100%.
So what impact will it have on A shares?
According to China Fund News, multiple securities firms analyzed that the supply of oil tankers and dry bulk carriers in the shipping segment is tightening, and redundant production capacity is insufficient. Any risk events that cause damage to navigation efficiency may drive freight prices up rapidly. The container shipping industry is stable and has benefited most from the loss of efficiency in the Suez Canal. Taking into account the latest supply and demand situation in the industry and global geopolitical risks, the “recommended” rating of the shipping sector is maintained.
Due to increases in fuel costs and insurance premiums, container shipping prices on Asia-Europe routes have risen for four consecutive weeks, with a month-on-month increase of more than 10% last week. The LNG and tanker transportation markets were also affected, with VLCC daily rents increasing by 50% month-on-month.
The above-mentioned shipping giants account for a total of 53.5% of the shipping capacity on the Asia-Europe route. Vessels detouring around the Cape of Good Hope will reduce turnover efficiency by 19%. We estimate that the capacity efficiency of the Asia-Europe route affected by the current impact is about 10.2%, and the container supply and demand pattern has eased. The instability of the current global environment has increased, and shipowners’ ability to adjust supply in response to sudden external shocks has become more fragile. The increase in freight price volatility has led to the recovery of shipowners’ profits, which is conducive to the continued recovery of shipbuilding orders.
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