As expected, the spot rates peaked in the lead-up to Chinese New Year and then began a reverse slide. This is partly due to the normal seasonality surrounding Chinese New Year, but also due to the simple fact that networks have now stabilised in their new round-Africa loops. The initial disruptions on both vessel and equipment availability have by now been largely sorted out.

From a risk management perspective, shippers should be aware that even though we have sufficient capacity to go around Africa at the present time, there is no additional redundancy if yet another crisis emerges to soak up more capacity.

Naturally, the diversions do soak up a substantial amount of capacity, but not so much as to lead to any severe lack of capacity. A very good indication of that balance emanated from the TPM conference in Long Beach at the beginning of March. This is the largest conference in container shipping and serves as a backdrop for starting the annual contract negotiations on the Transpacific. Whilst there was a general mood of hesitation on the part of the shippers due to global uncertainties, indications during the conference were that contract rates for the Pacific trade from Asia into the US West Coast would, in rough terms, end up around the same level as last year. This tradelane does obviously not go through the Red Sea and the Suez Canal. However, if there had been a significant systemic lack of capacity in going around Africa, carriers would have had the option to remove vessels from the Pacific and insert them in round-Africa services. Such an option would therefore also mean a sharp upward pressure on annual contract rates – the absence of which does help confirm the notion that we have enough capacity for the round-Africa services.

From a risk management perspective, shippers should be aware that even though we have sufficient capacity to go around Africa at the present time, there is no additional redundancy if yet another crisis emerges to soak up more capacity.

For shippers, this has created a situation where if you book not only with CMA CGM but also their vessel-sharing partners in Ocean Alliance, then you do not know for sure whether or not your cargo will go through the Red Sea. This creates uncertainty as to whether or not you require expensive war risk insurance for the cargo, as well as introducing the possibility that the cargo might end up arriving two weeks earlier than planned.

The current crisis in the Red Sea worsened significantly over the past month. Coalition forces led by the US stepped up the number of strikes on land-based targets in Houthi-controlled areas of Yemen, but this did not reduce the attacks from the Houthis. In fact, the opposite happened and the frequency of attacks on merchant vessels not only increased but also became more destructive as the Houthies became better at actually hitting the vessels they targeted. This led first to the sinking of the vessel Rubymar in the Red Sea, followed shortly thereafter by the deadly attack on True Confidence in the Gulf of Aden.

From a container shipping perspective, the status is that almost all major container carriers are going around Africa. In early February, CMA CGM suspended their Red Sea transits following an attack on one of their vessels but in late February they had resumed some sailings. The French carrier adopted the stance that they would evaluate their vessel transits on a case-by-case basis and not necessarily announce beforehand what they would do. For shippers, this has created a situation that if you book not only with CMA CGM but also their vessel-sharing partners in Ocean Alliance, then you do not know for sure whether or not your cargo will go through the Red Sea. This creates uncertainty as to whether or not you require expensive war risk insurance for the cargo, as well as introducing the possibility that the cargo might end up arriving two weeks earlier than planned.

Smaller Asian and Middle Eastern niche carriers continue to offer services between Asia and the Red Sea, with Chinese niche carriers continuing to operate their China-Russia services using the Red Sea transit.

Given the escalation in the attacks, it seems unlikely that a Suez-routing will be resumed anytime soon by the major carriers. It is more likely that they will contemplate also reducing their services to Djibouti. Until now they have continued as planned, but with the increase in attacks in the Gulf of Aden culminating in the deadly attack on True Confidence on 6 March, some reduction of capacity operated into the Gulf of Aden might be expected. This will, in particular, impact services to and from Ethiopia.

About Lars Jensen, CEO, Vespucci Maritime

Lars is a leading expert and thought leader in analyzing global container shipping markets. Lars has 20 years’ experience hereof the last nine within multiple companies he has founded, with the main focus as CEO of Vespucci Maritime.
 

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