December 2023 was marked by the start of a recovery in freight rates, after a particularly bearish year for the shipping companies.
We highlighted the possibility of a drastic reduction in the number of container ship passing through the Suez Canal in our November barometer. We based our analysis on the attack on the Galaxy Leader by Houthi rebels, which we saw as a real threat to shipping, crews and cargoes. It seemed clear to us, too, that this situation represented an opportunity for the shipping companies to restore their profit margins if they dropped the canal and went round the Cape of Good Hope instead.
The main source of uncertainty at the time concerned the ability of the shipping companies to coordinate their ripost. In the end, however, they showed impressive discipline. Following an announcement from Maersk, with just a few rare exceptions, all east-west container traffic had ceased transiting via the Red Sea within 48 hours. Some ships had even paid to transit through the Suez Canal in both directions before opting to turn round because of the real threat posed by drones and missiles. We should recall that, under maritime law, merchant shipping companies must take measures to protect the cargo entrusted to them by shippers if they learn that there is a risk or hazard on the route taken by their vessels. This is clearly the case at present.
Immediate impact on rates
The impact on January FAK rates was immediate. In November, we estimated that a rate of about USD3,500 per 40' container would be needed to restore profitability on the Asia-Europe spot market in the event that the Suez Canal route became impracticable. This is clearly the rough minimum which shippers need to pay today for cargo already registered for loading in January on ships now taking some 15 days longer to reach Europe via the Cape of Good Hope.
So long as there is a threat to ships transiting through the Red Sea and the Gulf of Aden, there will be a risk which will inevitably have an impact on freight rates in one way or another. The fact that some shipping companies are still hesitating as to whether or not to transit through the Suez Canal has only disorientated the freight market further by creating additional confusion and increasing tension.
Solutions difficult to find
To try to protect the canal, which is essential for world trade, the United States announced on 18 December that it was launching "Prosperity Guardian", an international operation under US command intended to counter the Houthis' attacks. This initiative is struggling to gain support, however. France has said that it will back it but has specified that any forces it deployed would remain under French command. It drew on its own resources, moreover, to escort a certain number of ships, including some container vessels operated by CMA CGM. India, which is one of the major power in the "Global South", has also engaged its own military resources to escort Indian container ships.
The number of attacks on ships in the Red Sea has almost caused the initial assault on the Galaxy Leader to be forgotten. It should be remembered, however, that the vessel's crew is still being held hostage. This had been an obstacle to direct military intervention. In the night of 11-12 January, however, American naval and air forces, backed by Britain, carried out strikes against "targets in Yemen used by Houthi rebels".
New inflationary threat to retail prices
Apart from the logistical complexities visited on shippers by the longer transit times, the increase in freight rates has raised fresh fears of uncontrolled inflation for end-consumers.