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Red Sea tensions: Container ship transits more than halve; LNG trade nearly halts

April 19, 2024 at 1:46 pm

Yemeni tribesmen belonging to the Houthi movement carry a model of the Houthi-hijacked Israeli Galaxy Leader cargo ship while participating in a popular parade and rally held to support Palestinians and against the US-UK aerial attacks on Yemen, on February 7, 2024, in Sana’a, Yemen. [Mohammed Hamoud/Getty Images]

The Red Sea security situation has slashed container ship traffic in the region by more than half, which experts say has “completely shifted the trajectory of the container market”, while transits of liquefied natural gas (LNG) tankers are at a near standstill, Anadolu Agency reports.

The Red Sea has been a hotbed of tensions since the end of last year, when Yemen’s Houthis started attacking vessels linked to Israel as a response to its ongoing deadly war on Gaza.

The crisis has had a cascading effect on the global shipping industry, spurring price spikes as ships were forced to divert to the much longer route around South Africa’s Cape of Good Hope.

Container ship transits in the Red Sea plummeted by 55.6 per cent in the first quarter of this year, dropping to 3,464 from 7,804 during the same period last year, according to data from MarineTraffic, a ship tracking and maritime analysis provider.

LNG trade, meanwhile, has almost ground to a halt, with a fall of 84.3 per cent.

READ: Houthi leader calls on EU to withdraw Red Sea warships

Dry bulk ship transits decreased by 20.8 per cent, wet bulk ship transits by 21.6 per cent, LPG carriers 12 per cent, ro-ro transits 46 per cent and dry break bulk ship transits by 11.8 per cent, the data showed.

Freight rate spikes

Citing information from the Baltic Dry Index, Niels Rasmussen, a chief shipping analyst at Baltic and International Maritime Council (BIMCO), said freight rates jumped 39 per cent on the China-Europe line and 30 per cent on the China-Mediterranean line in this year’s first quarter.

Rates for the China-US East Coast line, on the other hand, decreased by 1 per cent, he said.

On average, the Baltic Exchange Dry Index has been 84 per cent higher compared to last year’s first quarter, while the Baltic Exchange Clean Tanker Index was up 18 per cent, he said.

The Baltic Exchange Dirty Tanker Index (BDTI), however, has been 8 per cent lower, he added.

Rasmussen said ships of all types have increasingly avoided the area and also stopped sailing through the Suez Canal, instead opting for the longer Cape of Good Hope route.

“In January 2024, average weekly transits through the Suez Canal, measured in deadweight tons, were 38 per cent lower than in 2023. In March 2024, the transits were 51 per cent lower than in 2023,” he told Anadolu.

Suez Canal transits of dry bulkers were 36 per cent lower in March, crude tanker transits dropped 39 per cent, product tankers were 48 per cent lower, and container ships were down 85 per cent lower, he said.

“It (rerouting of ships) has completely shifted the trajectory of the container market,” said Rasmussen.

Prior to the Houthi attacks, he said the supply and demand balance and freight rates were expected to weaken further in 2024.

Instead, demand has increased, leading to a tightened supply and demand balance due to the longer distance, he added.

‘Ships will need to start sailing much faster’

According to Rasmussen, despite pre-attack demand being relatively low, a recent surge in deliveries of new container ships has helped the industry absorb the shock.

READ: Houthis vow to continue targeting Israel, US, UK ships until war on Gaza ends

He said freight prices have increased, though not as much as during the COVID-19 period, which will likely be reflected in consumer prices.

“Should the situation develop in a way that all ships stop using the Suez Canal, it is very likely that the global fleet of ships will need to start sailing much faster,” he added.

“That would significantly hurt shipping’s ability to reduce greenhouse gas emissions and follow the decarbonisation strategy laid out by the International Maritime Organisation.”

Mounting import costs

Countries that most depend on the Suez Canal in terms of foreign trade are Sudan, Yemen, Djibouti, Saudi Arabia and the Seychelles, Jan Hoffmann, head of trade logistics at the UN Conference on Trade and Development’s (UNCTAD), told Anadolu.

These countries rely on the canal for “between one-fifth and one-third of their foreign trade volumes” and their trade costs have surged, he said.

“Egypt is also negatively affected, as it loses Suez transit income, and its trans-shipment ports are no longer at the crossroads of shipping lanes,” he said.

“By the same token, all countries in the Eastern Mediterranean, including Turkiye, all of a sudden find themselves at the end of a dead-end for all trade from Asia, as ships no longer reach them through the Suez Canal but, instead, have to go round South Africa and the Strait of Gibraltar, adding to costs.”

While import costs have increased for now, if the situation continues, demand will adapt to changing prices in the long term and lead to shifts in trade patterns, he said.

Hoffmann said it will take time for increasing import costs to be reflected in consumer prices, while pointing out that higher freight rates during the COVID-19 pandemic eventually led to an inflation spike of 1.5 percentage points.

“This time, the situation is different. Not all trade routes are impacted, but only those that go through Suez, plus the US West Coast. The increase in freight rates is not quite as high and the increase is not as long,” he added.

READ: US-UK launch new strikes on Yemen’s Hudaydah