DBS: Regional Shipping and Shipyards

alanyeo

4 months ago

<News Alert> Latest update on Red Sea attacks – The situation hasn’t got better

In recent weeks, there have been continued attacks on vessels in the Red Sea
Diversions away from the region are continuing, most significantly in the containership sector
Shipping market impacts: Container shipping > Tankers > Bulkers and Gas carriers

Latest market update

Data from Clarksons shows that as of 3 Jan 2024, a total of at least 22 ships (up from 16 ships as of 20 Dec 2023) reported attacks in the Red Sea. Major containership operators announced that they were temporarily suspending all transits through the Red Sea (Maersk and CMA CGM didn’t provide a timeline, while Hapag Lloyd announced a continued suspension through at least 9 Jan 2024). As of 3 Jan 2024, a total of c.309 containerships of ~4m TEUs are identified as having been diverted around the Cape of Good Hope, accounting for c.15% of the total vessels passing through the Suez Canal. By sector, containership transits were down 72%, LPG carriers by 60%, car carriers by 49%, and LNG carriers by 35%, while bulkers and tanker transits have remained similar to pre-December levels overall.

The US-led naval coalition ‘Operation Prosperity Guardian’ has been in effect since late December. Some countries have independently sent naval ships to the region. However, it is not clear if it has had any immediate impact on securing the strategic waterway, as ship operators continue a pause in transits through the region.

How long will it last?

Maersk estimates that the situation affecting Red Sea shipping may persist for several months. Linerlytica expects freight rates to remain elevated through mid-February, backed by the tight capacity situation.

Shipping market impacts: Container shipping > Tankers > Bulkers and Gas carriers. The rerouting of vessels around the Cape of Good Hope will add an extra 20%-30% to voyage time, and costs will definitely rise. At the same time, the longer voyage will reduce effective capacity and raise tonne-mile demand, which is good news for shipping operators, especially container operators. Ships passing through the Suez Canal primarily sail the Asia-Europe route, constituting 10% of the overall maritime trade volume. Among them, container ships make up 22%, tankers 36%, and bulk carriers 6%, according to Clarksons. Currently, judging by the number of vessels rerouted and the effect on freight rates, container shipping is the most affected. With the current high pre-Chinese New Year cargo demand and the potential impact of the EU carbon tax, they can charge higher freight rates. The eventual extent of the impact on the market will depend on the scale and duration of the disruption at the Suez Canal. The rise in freight rates will directly enhance earnings for global shipping operators, particularly those with more exposure to Asia-Europe trade.

It will improve the supply and demand fundamentals for container shipping in the long term. Even without the impact of the Red Sea situation, the container shipping sector would have continued to be burdened by overcapacity in 2024, with TEU-mile demand up 3.6% and supply up 7.3%. However, optimistically speaking, Clarksons estimates that if all Far East/ME/ISC-Europe trade (both directions) is diverted away from the Suez throughout the entire year of 2024, it would add 10% to global TEU-mile trade, enabling the complete absorption of the capacity surplus in the container shipping market.

Red Sea impact on spot freight rates

Spot freight rates	Change from 15 Dec to 29 Dec	Comments
Container shipping – SCFI	+60%	Asia – Europe: +160%Asia – Med: +120%Asia – USEC/USWC: +20-40%
Tanker – BDTI and BCTI	Both +6%	Aframax spot earnings +33%
Bulker – BDI	-15%	Limited impact
LNG – L NG 160K CBM Spot Rate	-38%	Limited impact