17 Jan, 2024• – Shipping companies were forced to reroute around the Cape of Good Hope due to attacks on vessels transiting the Red Sea by Yemen-based Houthis, leading to higher ocean freight rates.
- US owned vessel Gibraltar Eagle was recently struck by Houthi militants, according to the US Central Command.
- The disruptions are reversing the industry’s fortunes after it experienced a recession last year.
- Rerouting is adding billions to the bottom lines of vessel operating common carriers (VOCCs) like Maersk and Evergreen.
- Profits could return to 2022 levels if disruptions last 3-6 months due to lower operating expenses compared to recent years.
- After booming during the pandemic, the global shipping industry has been in a slump with rates halving and bankruptcies occurring.
- However, rates have now more than doubled from lows last November following the Red Sea attacks.
- While helping absorb excess vessel capacity, it’s uncertain how long higher rates will last depending on tensions in the Red Sea.
The current hostile situation in the Red Sea has inadvertently created a financial windfall for many shipping companies. The requirement to reroute around the Cape of Good Hope, though operationally challenging, has led to a surge in ocean freight rates, revitalising an industry that had been in recession. This sudden increase in demand has alleviated the excess vessel capacity issue, thus providing a lifeline to companies like Maersk and Evergreen. Despite this unexpected boon, it is crucial for these companies to navigate cautiously. This boom, linked as it is to geopolitical tensions, is unpredictable and could be short-lived. Moreover, the elongation of shipping routes may lead to increased fuel consumption and logistical challenges, which could erode some of these profit margins. Therefore, while the current situation brings immediate financial prosperity, the long-term sustainability of this boom is uncertain.