A screen grab captured from a video shows that cargo ship ‘Galaxy Leader’, co-owned by an Israeli company, being hijacked by Iran-backed Houthis from Yemen in the Red Sea on November 20, 2023. (Photo by Houthis Media Center / Handout /Anadolu via Getty Images)
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The ripple effects of the Red Sea diversions have expanded into the energy markets and despite repeated attacks on Houthi rebels by the U.S. and allies, shipping experts say the crisis may linger for months and lead to a cargo container supply crunch.
“So far, it almost seems the Houthi attacks are just increasing,” said Bendik Folden Nyttingnes, a shipping analyst at Clarksons Securities.
In an email to clients, Honour Lane Shipping (HLS) said its carrier contacts are “informally” predicting the Red Sea situation will not be solved for at least six months, and could last up to a year. “If so, we expect the soaring freight rates and equipment shortage will continue till the third quarter,” it advised clients.
Earlier this week, Shell confirmed that its oil tankers are temporarily being rerouted around the Red Sea, with its CEO telling the Wall Street Journal that a 5-10% price impact is anticipated in the short-term.
Kpler’s ship tracking director Jean-Charles Gordon estimates that vessels managed or chartered by Shell that are being rerouted via the Cape of Good Hope can expect an approximate 10-day delay in their estimated time of arrival.
“As several product tanker operators are avoiding the area following the airstrikes on Friday, the longer transit times around the Cape of Good Hope could create a supply shortage of tonnage if the situation continues, which in line could push product tanker rates and stocks higher,” Nyttingnes said.
Torm , Hafnia, Stena Bulk, Hafnia, BP, Frontline, Equinor, Euronav are reportedly among the tanker operators and energy companies choosing to avoid the area following recent warnings. Companies including Tom, Hafnia, Scorpio Tankers and Ardmore would benefit if product tanker rates rose, Nyttingnes said.
These diversions are immediately eating into Egypt’s economy, with its GDP reliant on the Suez Canal, which it owns and operates. The country’s other significant source of revenue, travel, has been decimated because of the Israel-Hamas War.
“If Total Suez Canal tanker transits are over 8 million barrels per day, the losses to the Canal Authority are probably in the range of $5 to $7 million depending on the mix of tankers going through,” said Andy Lipow, president of Lipow Oil Associates.
This would be on top of the revenue lost by diverted container vessels which are required to pay between $500,000-$600,000 per transit. According to Kuehn + Nagel, 90% of container ship traffic bound for the Suez Canal has been rerouted.
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