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The crisis in the Red Sea has worsened

Over the past month, the situation for shippers moving cargo between Europe and Asia has, in effect, remained unchanged. The major global carriers are navigating south of Africa, with CMA CGM being the only exception.

And even for CMA CGM, it's only a matter of a few ships, not all of their services. After the French shipping company was hit by another attack on one of their ships about a month ago, they also announced a halt to transit through the Red Sea. But this has been changed again, so that a risk assessment is made for each individual ship, and thus in some cases, there is again talk of transit through the Red Sea. Looking at the total capacity between Asia and Europe, the effect of this is very small.

At the same time, several Asian niche carriers continue to service the Asia to Red Sea route through the Bab el-Mandeb Strait. These include carriers such as X-Press Feeders, Global Feeder System, and Asyad Shipping, to name just a few. Furthermore, Chinese niche carriers continue to ply the route from China to Russia through the Red Sea. So far, none of these niche carriers have been subjected to an attack by the Houthis.

Escalation of attacks on Western warships 

From a broader perspective, the crisis has clearly worsened over the past month. There has been an increasing number of attacks by the Houthis on commercial ships in the area, which so far has culminated in the killing of 3 sailors aboard the ship "True Confidence," as well as the sinking of the ship "Rubymar." Moreover, the number of drones and missiles that have been launched against Western warships in the region has significantly increased in the past week.

Looking at the actions of the Houthis, it is clear that the crisis has worsened, with no immediate prospect of a resolution. As such, shippers should continue to plan based on a baseline scenario where supply chains between Europe and Asia continue to navigate south of Africa.

Adaptation and stabilization in the freight market based on new norms

The new services around Africa have stabilized, and now, past the Chinese New Year, spot rates have started to decline again. The WCI spot rate index from Asia to Europe has been dropping since the end of January but is still significantly above the pre-crisis level. In the Pacific, spot rates have also begun to fall, although this started later than for Europe. On the main Atlantic route from Europe to North America, shipping companies successfully raised spot rates at the beginning of February, and so far, they are maintaining these increases. It's important to note in this context that the extremely low spot rate level on this route in the second half of 2023 was directly loss-making for the shipping companies. The new level is essentially the same as what was normal before the pandemic.

Globally, freight volumes continue to be weak. The latest data from Container Trade Statistics cover cargo that came on board in January. It's always difficult to measure growth in January because the changing date for the Chinese New Year "disrupts" the measurement. This year, the New Year fell on February 12th, and looking at 2019 before the pandemic, it was February 5th. Not the same date, but close enough for a reasonable comparison. Looking at the development in TEU*Miles, based on the normal route through the Suez, freight volumes have grown by 3.5% since 2019. That's a mere 0.7% per year on average. However, considering the new longer distance around Africa, the growth is equivalent to 3.8% per year on average since 2019.

This is extremely important as the fleet size has grown by 4.5% per year on average during the same period. This means that the market, broadly speaking, is relatively well-balanced, as was also the case before the pandemic. It also means that if shipping companies suddenly return to using the Suez Canal, significant overcapacity will immediately arise, and spot rates will plummet rapidly. But as mentioned earlier, there are no immediate signs that a solution to the crisis is imminent.

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