- AWRP unchanged as risk persists at Bab al-Mandab Strait
- NYK says will consider resuming Red Sea shipping after confirming safety
- Red Sea vs. Persian Gulf MR premium at w210 on Jan 16
Most shipping companies and charterers will continue to route their tankers and cargoes via the longer Cape of Good Hope for the time being, despite the ceasefire agreement between Israel and Hamas, market participants in the UAE, Singapore and Northeast Asia said, according to S&P Global.
The risk of Houthi rebel attacks on ships remains significant in the Red Sea region as they are controlled by Iran, a senior executive with an oil trading company said late Jan. 15, on the sidelines of an event organized by the Singapore Maritime Foundation, or SMF, ahead of an imminent ceasefire agreement.
The executive said that unless the risk element decreases, there will be no change in the situation on the ground.
Israel and Hamas reached a ceasefire deal Jan. 15 after months of intensive diplomacy by the US, Egypt and Qatar, following Hamas’ Oct. 7, 2023 attack on Israel, US President Joe Biden said.
Rampant attacks in the Red Sea prompted most shippers and traders in December 2023 and early last year to divert from this key waterway for global commodities trade to the Cape of Good Hope route.
The latest ceasefire has once again revived hopes for the resumption of normal shipping via the Suez Canal in the Red Sea.
A spokesperson for Japan’s NYK Line — one of the world’s largest ship operators — which halted the passage of all its operated ships through the Red Sea in January 2024, said Jan. 16 that the company will consider resuming Red Sea shipping only after confirming the safety and other conditions in the surrounding sea, as a permanent peace has not yet been established.
Similarly, a spokesperson for Japan’s container conglomerate Ocean Network Express, which suspended navigation through the Suez Canal and the Red Sea in December 2023 due to escalating security threats and rerouted its ships via the Cape of Good Hope, said Jan. 16 that the company will continue to closely monitor the situation in the Red Sea.
High risk
Despite the much shorter distance, significantly lower bunker consumption and smaller voyage time, the voyage for LR tankers to Europe from the Persian Gulf offers a discount of barely $200,000 compared with the longer route via the Cape of Good Hope, according to S&P Global Commodity Insights data, due to the high war risk premium involved.
Most participants at the SMF event insisted that their companies will continue to route shipments via the Cape of Good Hope unless the risk involved declines. They said that until US sanctions on Iran are lifted, the risk of Houthi fighter attacks will remain to some degree.
The Red Sea region continues to be categorized as a high-risk area, or HRA, by the Joint War Committee of Lloyd’s, which provides guidelines to maritime insurers for setting their respective premium values.
All ships passing through the Bab al-Mandab Strait must pay an additional war risk premium, or AWRP, which still stands, regardless of the agreement with Hamas, a tankers’ shipping executive in the UAE said.
Although this premium varies from ship to ship, it is approximately $150,000 for MR tankers, the executive said.
The executive added that only a handful of owners are moving cargoes through the Red Sea and continue to charge a hefty premium to do so. The AWRP for seven days of transit in the Red Sea is approximately 0.5% of the value of the Hull and Machinery, remaining unchanged for more than six months, according to brokers tracking such deals.
The LR1 Red Sea-North Asia routes command a w70-w100 point premium over the loadings in the Persian Gulf for the same destination, sources said. For MR tankers moving on these routes, Commodity Insights placed the premium at w210 on Jan. 16.
LNG shipping
LNG ship transit via the Red Sea and through the Suez Canal has been halted for over a year due to the escalation of attacks on merchant ships. However, the LNG shipping market has remained soft due to the large order book of newbuild ships, which has outpaced the slowdown in new LNG supply projects.
When asked whether Japan’s JERA would consider resuming Red Sea sailing for its LNG transport, a spokesperson said, “We will continue to closely monitor the safety situation for Red Sea navigation.”
Company officials at South Korea’s SK E&S and Korea Gas Corp., which had previously used the Red Sea route for their LNG transports, said that the companies do not plan to resume navigation through the waterway without an improvement in regional tensions.
“We have not been using the Red Sea route and may not resume Red Sea shipping in the near future without significant tension reduction,” an SK E&S official said. “We will monitor the situation very closely before deciding whether to resume use of the Red Sea route.”
The Platts-assessed LNG freight rates have been declining, reaching a record low of $9,000/day for the LNG Atlantic Carrier Day Rate and $11,000/day for the Asia Pacific Day Rate, Commodity Insights data showed. The Asia Pacific Day Rate was around $12,750/day on Jan. 15, the data showed.
A reopening of the Red Sea route for LNG carriers could put further pressure on shipping rates, as ships that were previously forced to take the longer route would now be able to use less tonnage for the same deliveries. The route was previously used for ballast voyages from Asia to the US Gulf, for Middle East LNG shipments to Europe and for US LNG shipments to the West Coast of India.
“Newbuild deliveries are projected to remain strong through 2025, with a record 90 conventional-sized LNG tankers anticipated to join the market. While new liquefaction supply is forecast to grow by a relatively larger 26.9 million mt, the increase in shipping capacity is once again predicted to outpace LNG supply growth,” Commodity Insights analysts said.
A trading source tracking US LNG trade flows said that they are skeptical about a sharp increase in the number of companies using the Red Sea route to Asia. This skepticism is due to the limited savings in shipping days when using the Cape of Good Hope over the Red Sea route, along with the additional Suez Canal transit fee for the latter.
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Source: S&P Global
