Ship Head Around Africa to Avoid Red Sea Conflict AreaVOA reports MSC to Divert Shipping Away From Suez Canal After Red Sea Attacks
Swiss-based MSC Mediterranean Shipping Co, the world’s largest container shipping company, will stop using the Suez Canal after an attack on one of its ships, it said in a statement Saturday.
Yemen’s Iranian-backed Houthi movement has in recent weeks been attacking vessels in the Red Sea — a crucial route allowing East-West trade, especially oil, to use the Suez Canal to avoid the extra time and expense of circumnavigating Africa.
The Liberian-flagged MSC Palatium III was attacked on Friday with a drone in the Bab al-Mandab Strait at the southern end of the Red Sea, according to the Houthis.
No injuries were reported, but the vessel suffered some fire damage and was taken out of service, MSC said. Another Liberian-flagged vessel, the Al Jasrah, was hit by a missile, which also started a fire, the U.S. military said.
The Houthis have in recent weeks stepped up attacks on shipping and fired drones and missiles towards Israel — on Saturday hitting the Red Sea resort city of Eilat — in support of the Iranian-backed Palestinian Islamist Hamas group fighting Israel in Gaza.
Maersk Reroutes VesselsBloomberg reports Maersk Sails South of Africa to Avoid Red Sea Conflict Area
About 20 Maersk vessels, waiting on both sides of the Suez Canal, will now change course and sail the long way around the continent, the Copenhagen-based company said in a statement on Tuesday.
“Out of safety reasons all vessels previously paused and due to sail through the region will now be re-routed around Africa via the Cape of Good Hope,” Maersk said. “They will continue their voyages on the diverted routes as soon as operationally feasible.”
Pentagon Unveils Multinational Operation to Stop ChaosAlso consider Pentagon Unveils Multinational Operation
On Monday, the Pentagon said it was establishing a security operation to protect seaborne traffic from ballistic missiles and drone attacks launched by the Houthi groups in Yemen. The effort, called Operation Prosperity Guardian, will include the U.K., Bahrain, France, Norway and other countries.
“This is an international problem. And it deserves an international response,” U.S. Defense Secretary Lloyd Austin said in Tel Aviv on Monday.
U.S. officials tried to secure the support of Saudi Arabia and the United Arab Emirates, the two main players in the Yemeni civil war, people familiar with the discussions said. The two countries have opted to stay out for now as they are long at odds over how to deal with the Houthis, who get weapons and money from Iran.
Oil giant BP on Monday became the latest company to halt its tankers from sailing through the Red Sea. Several of the biggest boxship owners—A.P. Moller-Maersk, Hapag-Lloyd, MSC and CMA CGM—have also decided to divert some ships.
After BP’s withdrawal, traders and brokers said they were concerned that other major shipping and trading companies could follow suit. For the world economy, disruption to shipping in the Middle East would compound a slowdown in transit through the Panama Canal due to low water levels.
If the Red Sea becomes a no-go zone for most tankers, it would redraw the global oil market for the second time in two years after the war on Ukraine and related sanctions forced Russia to find new markets for its petroleum. That could send oil prices and tanker rates vaulting higher, said Richard Matthews, research director at E.A. Gibson Shipbrokers.
“All you know is it is going to cause chaos, and everything is going to get a lot more expensive,” he said.
20 Percent of Global Shipping DisruptedThe Wall Street Journal reports Red Sea Attacks Worry Shipping Companies, Even as U.S. Sends Warships
Hours after the U.S. announced a multinational task force to protect commercial traffic through the Red Sea, shipping giant A.P. Moller-Maersk said it would send its vessels around the Cape of Good Hope in southern Africa instead.
The message was clear: Jitters remain about a possible snarl to one of the world’s most crucial trade routes.
The sliver of water, separating the Mediterranean Sea and Indian Ocean, is bookended by the Suez Canal to the north and Bab el-Mandeb to the south. Those two straits, along with an Egyptian pipeline, carry about 12% of the world’s seaborne oil and 8% of its liquefied natural gas. More than 20% of the world’s container trade passes through Suez, according to shipbroker Clarksons.
Unlike during the Iran-Iraq war in the 1980s, when naval vessels escorted oil tankers through the region, the current volume of shipping traffic through the straits is way too high to make relying on protective convoys feasible, said Gene Moran, a retired U.S. Navy captain who commanded a destroyer and a cruiser. Moran predicted the U.S. would soon have to strike Houthi targets on land.
Red Sea Chaos Should Boost Tanker and Container Shipping RatesFreightWaves reports Red Sea Chaos Should Boost Tanker and Container Shipping Rates
The number of shipping companies refusing to risk Red Sea transits is growing by the day. The waters off the Cape of Good Hope are about to get much busier as more ships circumvent Africa on a detour around the Red Sea and Suez Canal.
As of early Tuesday, companies confirmed or reported to be pausing Red Sea transits and/or rerouting around the Cape of Good Hope included container lines Maersk, MSC, Hapag-Lloyd, CMA CGM, Zim (NYSE: ZIM), Evergreen, Yang Ming, Cosco, OOCL, HMM and ONE; tanker owners Frontline (NYSE: FRO) and Euronav (NYSE: EURN); car carrier owner Wallenius Wilhelmsen; and oil and gas companies BP (NYSE: BP) and Equinor.
That list doesn’t capture the full effect, as ships controlled by other operators are also detouring. Argus reported that three liquefied natural gas (LNG) carriers and three very large gas carriers (VLGCs) diverted from the Red Sea route on Monday.
Ship diversions around the Cape significantly extend voyage distance, increasing shipping demand measured in ton-miles (volume multiplied by distance) and constraining transport capacity, a positive for rates.
The “dangerous dynamics” in the Red Sea highlight “how delicate global supply chains are” and how “prone to disruptions” they remain, said Mehrotra and Robertson.
How Long Will Cape Detours Persist?
Will ship operators feel comfortable enough to swiftly resume passages through the Bab-el-Mandeb as part of military-protected convoys? Or, will the new initiative lead to coalition strikes in Yemen that further escalate regional hostilities, making ship operators less likely to take a route through a war zone? And if military action does escalate, how long would it take for the Houthis’ attack capabilities to be destroyed?
“Convoys will take time to form and are not an ideal long-term solution, as vessels face added queueing time, slower sailing speeds and limited versatility,” said Omar Nokta, shipping analyst at Jefferies. “However, they are a much better alternative time-wise than sailing around Africa.”
Jet Fuel
Kpler analyzed the share of bulk seaborne commodity flows via the Suez Canal versus total trade, and jet fuel’s share was more than twice that of any other commodity.
“Jet fuel is the most exposed, at over 30%, as a result of the important trade flow from the Middle East and India to Europe,” said Kpler. “Should attacks escalate, the supply of jet fuel shipped to Europe will be affected first.”
US Direct Military OperationsIf this does not quickly blow over, costs will soar, delays mount, and the US will be directly involved in the Yemen war.Meanwhile, Saudi Arabia and the United Arab Emirates are sitting this one out.In the last 5 days, crude is up over 7 percent. That should make all the oil producers happy.More By This Author:Housing Starts Jump 14.8 Percent But Permits Sink 2.5 PercentIn China, Quiet Quitting Becomes Let It Rot And Lying FlatChina’s Securities Regulator Warns Companies To Increase Dividends And Buy Backs
