Container ship According to Bloomberg Intelligence, avoiding the risk of attack in the Red Sea reduced ship traffic through the narrow passage by about 70% between mid-July and December, driving up transit times and freight rates.
Chinese carriers including Cosco Shipment Holdings Co.’s profit rose on higher revenue from its container shipping business, while Orient Overseas International Ltd. said its trans-Pacific trade route performed better as a tight supply chain contributed to higher freight rates.
On the other hand, companies such as Miniso Group Holding Ltd. are being hit by higher logistics costs. Dixon Technologies India Ltd., a supplier to Xiaomi Corp., said margins were hit by higher freight costs and the motorcycle maker TVS Motor Company. He said exports faced longer transit times.
“The container shipping industry and the supply chain that connects it are once again being hit, this time by the prolonged crisis in the Red Sea,” said Bloomberg Intelligence analysts Lee A. Klaskow and Kenneth Loh. “The short-term result has been a surge in container rates and liner earnings.”
The Houthis, who are backed by Iran and control parts of northwestern Yemen, have been attacking ships with drones and missiles since mid-November. The Islamist militants say they are targeting ships linked to Israel and the West in solidarity with the Palestinians as the war in Gaza continues. An increasing number of merchant ships have opted for longer routes to avoid the area.
“We believe rates will return to below breakeven once supply chains normalize, given the structural challenges facing the industry,” BI analysts said, adding that a widening gap between supply and demand will likely weigh on the outlook for container rates and liner earnings.
The effects were mixed for port operators. China Merchants Port Holdings Co. said its port in Sri Lanka benefited from increased transshipment cargoes due to the Red Sea situation, while container volumes at its port in Turkey were lower. Adani Ports and Special Economic Zone Ltd., India’s largest port operator, saw overall volumes grow, while Gujarat Port Pipavav Ltd. He said container volumes fell due to skipped stops. Other beneficiaries include companies in the air cargo space, as businesses look for alternatives to longer shipping times.
This helped Singapore Airlines Ltd. boost its cargo load factor by 5.9 percentage points in the April-June quarter from a year earlier. The carrier highlighted “strong e-commerce flows and increased air cargo demand driven by the Red Sea crisis.”
Cathay Pacific Airways Ltd. also said it carried about 10% more cargo volume between January and June. The airline, along with HSBC Bank Analysts expect demand to remain at healthy levels through the end of the year.
MSC Mediterranean Shipping Co. CEO Søren Toft doesn’t think the Red Sea crisis will end any time soon.
“I don’t think there will be any short-term solution on the horizon” to ensure safe passage through the zone, the head of the world’s largest container line told Bloomberg News earlier this week.
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