Over the past several weeks, cargo ships passing through the Red Sea region have continuously faced attacks by Houthi rebels. Many shipping companies were forced to change itineraries, causing sea freight rates to increase dramatically.
Global shipping companies have diverted more than $200 billion in goods from the Red Sea to avoid attacks by Houthi rebels. The need for cargo ships to take a longer detour through the Cape of Good Hope in South Africa has pushed freight rates up to 10,000 USD for a 40-foot container (FEU).
US Central Command said the vessel was commercial Gibraltar Eagle owned by this country was just attacked by Houthi forces on January 15.
Some observers predict disruptions in the Red Sea could reverse the shipping industry’s fortunes after a difficult 2023.
Exchange with CNBCMr. Alan Baer, CEO of logistics company OL USA, said: “…the crisis in the Red Sea can help VOCCs earn billions of dollars more even if the tension only lasts 2-3 weeks.”
VOCC are shipping companies with their own fleets. Maersk (headquartered in Denmark), Evergreen (Taiwan) and COSCO (Mainland China) are some famous VOCCs in the world.
Mr. Baer continued: “If the conflict lasts for 3 to 6 months, maritime companies’ profits will gradually return to the high level of 2022 because operating costs will be lower than during the chaotic period of 2022. 2021 and 2022”.
A cargo ship of maritime giant Maersk. (Image: Bloomberg).
Wind of change
The global shipping industry weakened last year as inventories of goods rose and consumers tightened spending due to high interest rates. Before the Red Sea incident, global container rates had more than halved from 2022.
A recent report by Jefferies shows that the average freight rate from Asia to Europe in 2023 is 1,550 USD/FEU. Currently, the price has more than doubled to 3,500 USD/FEU.
Mr. Paul BrashierSenior Vice President at ITS Logistics, said: “Last November, we almost saw the bottom… freight rates dropped to their lowest level.”
According to data from analyst John McCown, the total profit of shipping companies in 2021 and 2022 is $364 billion. This number is very large when compared to the accumulated loss of 8.5 billion USD that this industry recorded in the period 2016 – 2019.
However, the net profit of maritime businesses has evaporated 95.6% over the same period in the third quarter of 2023, down to 2.6 billion USD.
The recent increase in freight rates cannot help shipping companies return to the beautiful post-pandemic days, but the current trend will still help profits increase significantly.
ING economist Nico Luman said that the profits of container shipping lines will recover in the first quarter of 2024 when freight prices increase as currently.
Mr. Brashier emphasized: “We predict the recession of the shipping sector will end this year, most likely by the end of the third quarter.”
How long will fare increases last?
As tensions in the Red Sea continue to escalate with the US and UK attacking Houthi targets and the rebel group threatening to respond, freight rates are unlikely to decrease in the short term.
Mr. Brashier noted that contract rates and spot market rates could both rise further.
In addition, the Lunar New Year in China could also push up freight rates right before many businesses close for the holiday in about two weeks, said ITS Logistics’s VP.
According to Mr. Brashier, activity export of Asian countries often strengthens before the Lunar New Year, leading to higher demand for transporting goods.
However, other experts say it is still too early to make accurate forecasts. LSEG analyst Amrit Singh told CNBC that the rise in rates largely depends on how long the disruption lasts.
“The participation of foreign navies, including the US Navy, can prevent Houthi attacks, causing freight rates to be adjusted,” Mr. Singh argued.
In addition, global maritime businesses are also facing a surplus of containers. Firms rushed to buy more containers as they saw record profits increase after the pandemic, leading to excess container capacity.
Mr. Lee Daejin, Director of Global Research at Fertistream, noted: “Overall, the container market will still be stagnant due to oversupply issues.”
According to VietnamBiz.vn
