It is very much in the interests of the world's leading economies to take a firmer line on the disruption of shipping in the Red Sea. This would allow ocean freight rates to fall again as quickly as they climbed in the spring.
Last January, we carried out our traditional forecasting exercise by presenting three possible scenarios for the container shipping sector in 2024. As we go into the second half of a year which has been marked by domestic political and geopolitical turbulence, let us look again at our three hypotheses, concentrating particularly on the first one, which came very close to what has actually happened.
1/ Scenario 1: missing out the Suez and Panama canals
Our first scenario was based on the hypothesis that there would be a return to the historic shipping routes round Cape Horn and the Cape of Good Hope because of the disruption - for very different reasons - of shipping using the Panama and Suez canals. This scenario was not confirmed in the case of the Panama Canal but turned out to be much truer than expected as regards the route round the Cape of Good Hope.
- A temporary solution which is still in place in the Red Sea
Going round Africa via the Cape of Good Hope, on the other hand, has turned out to be a temporary solution which is still in use. Faced with the attacks of the Houthis on ships going through the Red Sea, which is considered a war zone, the need to protect seafarers and the surcharges imposed by the insurance companies have made the deviation virtually obligatory. The world's leading container shipping company, MSC, has become a priority target for the Houthis on the basis of its supposed links with Israel. Some of its container ships, like some CMA CGM container vessels, are continuing to go through the Suez Canal on a case-by-case basis under the protection of the naval vessels provided under the European Union's Operation Aspides. All the other leading shipping companies are going the long way round, however, until further notice. The odd Maersk vessel still goes through the Red Sea but these are Maersk Limited ships under contract to the United States and are protected by the US and British navies under Operation Prosperity Guardian.
- An unexpected windfall for the shipping companies
From a short-term financial point of view, the situation in the Red Sea is enabling the shipping companies to remain profitable in the current financial year. This is an unexpected turn of events, since, before the attack on Israel on 7 October and the Israeli riposte which followed it, the prospects of the shipping companies in 2024 were particularly morose. In the Asia-Europe market, in particular, freight rates were below break-even level and the prospect of a massive arrival of fresh capacity promised a particularly difficult financial year.
The big regular line operations finally saw their results improve markedly quarter on quarter during the first three months of 2024, even if there were significant declines in revenues and EBITDA by comparison with the first quarter of 2023, when rates were particularly high.
(1) MSC is not included in this table because the group does not publish its results. (2) Q4 of the fiscal year 2023-2024. © Upply
Current freight trends suggest that the improvement in the shipping companies' finances has continued in the second quarter.
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