by Chris Black
Rabobank Global Strategist Michael Every began a Tuesday note aptly named “Oil and Water” by acknowledging the value of energy water routes in an inflationary, multipolar world: “Especially as Yemen’s Houthis have attacked ships carrying cargo via the Red Sea or Arabian Gulf.
Welcome to how the world used to work before British, then US, naval supremacy.
This is what a multipolar world is going to look like…”
Michael Every laments that the military response is only reactive to attacks on shipping, not proactive at the source: “That maintains the risk for more shipping to divert from Suez round the Cape of Good Hope (t.me/CIG_telegram/40555?single): if so, global carriers would only be able to make 3-4 Asia-Europe roundtrips per year, not 4-5, a massive structural drop in supply capacity.”
The Rabobank report appropriately followed an article out of the FT titled ‘Global pre-Christmas trade at risk from twin canal crises (www.ft.com/content/416310ed-9ad0-4cf8-b7df-fd59ce79847b)’, which warned of a synergistic supply shock from both the Panama drought and, of course, ongoing geopolitical risks near the Suez.
The FT notes that “Switching routes from Panama to Suez adds five days to journeys between New York and Shanghai… If more shipowners avoid the Suez Canal and take the long route around Africa’s Cape of Good Hope for journeys between the same cities, this could add an additional six days to their journey.”
At least (www.marinetraffic.com/en/ais/details/ports/795?name=PANAMA-CANAL&country=Panama) 167 ships crossed the canal during the first week of December this year, compared (www.ft.com/content/b6604ad4-d2c9-4a00-8a50-1241fa86f26c) with 238 last year.
Authorities have for the first time reduced the number of crossings (www.ft.com/content/b6604ad4-d2c9-4a00-8a50-1241fa86f26c), which by February will be limited to only 18 ships a day.
Multiple shipowners have already applied surcharges (www.bloomberg.com/news/articles/2023-12-06/chunk-of-global-trade-menaced-by-attacks-on-red-sea-shipping) of hundreds of dollars per container for exporters sending goods through Panama, as the cost of using the canal increased by up to millions of dollars per ship passage.
Earlier this month, Hapag-Lloyd announced (www.hapag-lloyd.com/en/services-information/news/2023/12/war-risk-surcharge-jan-2024.html) an upcoming “war risk surcharge” of up to $80 for all shipments to and from Israel.
The Red Sea is now largely closed to traffic, affecting (windward.ai/blog/how-to-read-the-red-sea-and-a-specific-area-to-monitor/) 8.8 million bpd of daily oil transit, and nearly 380 million tons of daily cargo transit.
Global traffic now will be rerouted around Cape of Good Hope, adding on average 40% to voyage distance (windward.ai/lp/windward-port-insights-november/) and even more in expense.
The collective vessel market share of MSC (maritime-executive.com/article/msc-and-cma-cgm-suspend-red-sea-transits-as-us-and-uk-down-multiple-drones), Hapag Lloyd (www.barrons.com/news/shipping-firms-msc-cma-cgm-suspend-passage-through-red-sea-23e716a7), and Maersk — each of which are recent victims to piracy attacks and have decided to totally suspend voyages via the Red Sea — is approximately 40% of global cargo trade (www.cnbc.com/2023/12/15/shipping-giants-hapag-lloyd-and-maersk-pause-red-sea-travel.html).
Transit times from Asia to the Mediterranean were at a threshold last month, and are now expected to rise up to an additional 10-14 days (windward.ai/lp/windward-port-insights-november/).
Meanwhile, global sea freight face additional risks in the Western hemisphere as drought conditions plague the Panama canal .
Sue Terpilowski of the Chartered Institute of Logistics and Transport (www.maritimeuk.org/priorities/people/diversity-maritime/projects/speaker-bank/view-our-speaker-bank/sue-terpilowski-obe/), which represents companies concerned with supply chains, told the BBC (www.bbc.com/news/world-middle-east-67738792) about the likely spike in costs after four of the top five companies in the world suspended operations in the area:
“It’s security to the crew, to the ship itself and also insurance policies. Premiums are now going sky high if they can get insurance at all, so it’s going to have serious implications on stock levels, on costs and the whole dynamics of supply chains.”
The acceleration of de-globalization is leading to a surge of uncertainty along major global maritime routes and transport expenses.
Meanwhile , managed money positioning in energy futures is at its lowest since early 2016 when oil bottomed, as hedge funds crowd into energy shorts in anticipation of recession to dominate price.
Positioning in energy equities is similarly short and crowded.
A (t.me/CIG_telegram/40688)tourniquet is tightening on Europe’s lifeblood in the dead of winter.
BP pausing oil tanker transits in the Red Sea is more alarming than Maersk’s pause.