Lloyd’s list Intelligence vessel-tracking data reveals that a tipping point has been reached in the Red Sea this week as shipowners and charterers started a second wave of diversions around the Cape of Good Hope on the assumption navies alone cannot curtail the danger
A tipping point has been reached this week in the Red Sea.
While containerships have been diverting away from the Suez Canal since mid-December, tankers and bulkers have finally made the call to follow them as US and UK air strikes against the Houthis failed to stem attacks and insurance rates spiked in response.
The industry is now divided between those who have called the Middle East security risk as a mid-term diversion to be managed, and those who are prepared to run the gauntlet of near-daily attacks on the basis that the Houthis will only target ships with an Israel, US or UK link.
Maritime traffic through the danger zone is down significantly: Lloyd’s List Intelligence vessel-tracking data recorded a 38% slump in cargo-carrying traffic through the Bab el Mandeb Strait compared to early December.
Between January 1-14, a total of 657 cargo-carrying vessels over 10,000 dwt passed through the Bab el Mandeb.
This includes transits where the Automatic Identification System has been disabled to disguise a vessel’s passage through waters outside of Houthi-controlled Yemen territory.
In the first two weeks of December the equivalent figure was 1,054.
That was led by the box sector where lines were the first to divert around the Cape of Good Hope, resulting in a 37% slump in Suez Canal transits of internationally trading cargo-carrying vessels compared to normal volumes, and a 125% increase in rates.
Tanker traffic volumes through the Bab el Mandeb remained relatively stable during the containership exodus but show notable signs of slowing at the beginning of January.
Bulkers had been holding off on the more complicated and expensive call to reroute until this week.
A succession of five air strikes to date targeting the Houthi’s purported weapons bases has failed to stem the pace of attacks against shipping.
“Are they stopping the Houthis? No. Are they going to continue? Yes,” US President Biden said of the air campaign against the Houthis, which began a week ago.
Faced with the prospect of a sustained period of attacks and counterattacks with no end in sight, and a tripling of war risk insurance rates this week, shipowners and charterers started to divert ships. At least in part.
Product tanker transits of the Bab el Mandeb are down 47% when comparing the first two weeks of January to the end of November and early December. Crude oil tanker transits are down 23% and bulk transits 12%.
However, those figures are now likely to start worsening as the higher cost of insurance, crew and security in the Red Sea make diverting around the cape relatively less costly.
The divergence in timing was partly a function of legal risk. While container lines could pass on costs to their customers relatively simply — absorbing excess capacity along the way — the calculation was harder elsewhere.
Neither the owners nor the charterers were willing to be the one to make the call and potentially incur legal claims.
That standoff was partly superseded by the rising insurance premiums this week. On paper, the additional rates being quoted by some providers would represent an additional $1.3m on the cost of a single trip for a brand new VLCC booked to load a consignment of crude from a Saudi west coast port.
But it was also a function of timing. While the owners and charterers were waiting for each other to blink on existing charters, all new business was quickly being priced on the assumption of a diversion away from the Red Sea.
Western traders and brokers by mid-week were near universal in reporting a wide-scale move away from taking any new business in the Red Sea. But there is still a significant body of business prepared to take the risks, and premiums, now on offer for those who buck the trend.
For some owners, the assumed security of ties to China and Russia appear to be helping their fleets secure safe passage. As Lloyd’s List reports today, the proportion of China-linked tonnage appears to have surged, much of it involving trade with Russia. It is also clear that more vessels are using their AIS signal to broadcast their links to China.
That strategy appears to gaining traction with the Houthis. On Friday senior Houthi official Mohammed al-Bukhaiti told Russian media that Russian and Chinese vessels would be given safe passage.
Despite multiple attacks hitting vessels with no links to Israel, the Houthis have repeatedly claimed that they are acting in solidarity with Palestine amid Israel’s war against Hamas militants in Gaza and will only target ships linked to Israel and now US and UK in retaliation for the air strikes against them.
For those vessels not directly being targeted, risk is clearly high, but several owners with vessels continuing to trade through the Red Sea have pointed out that, to date, the Houthi attacks have not resulted in significant damage and no loss of life. For some that appears to be sufficient odds to continue operating.
Those odds, however, are rarely a matter for discussion with their crews.
Lloyd’s List was told of at least one incident this week where a crew refused to enter the Red Sea only to be told they didn’t have a choice and contract termination would be the only real conclusion should they not reconsider. They reconsidered and that ship sailed into the Red Sea.
Meanwhile, disrupted transits, delayed deliveries and volatile freight markets continue to add pressure on the markets.
“It’s hard to see the Red Sea situation getting better any time soon,” explained one senior tanker trader, pointing out that the same holds for the restrictions in the Panama Canal and widespread congestion, weather disruptions and a general feeling of chaos in the market.
“We're probably at peak disruption and peak inefficiency now,” he said. “It is difficult to imagine what else you can add to this market to add an extra layer risk on what is already happening, but that’s what we said last week."
Source Lloyd’s list
