Fresh Strikes On Houthi-controlled Areas May Trigger Freight Rates Uptick

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The latest US- and UK-led strikes on Houthi-controlled areas in Yemen have led to concerns that the ongoing conflict in the Middle East may escalate, putting the commercial shipping network in the region at greater risk and likely further pushing up freight rates, sources said.

Additional Costs Incurred

The attacks are likely to result in more ships avoiding the Red Sea route, which would lengthen the duration of voyages, tighten the supply of ships, and lift the additional war risk premia, or AWRP, and freight rates, market participants said.

The LR2 tankers that carry up to 90,000 mt of refined oil products currently command premiums as high as $1 million for a voyage on the Persian Gulf-Europe routes via the Cape of Good Hope, over the earlier more common transit via the Suez Canal, maritime sources said.

LR2s — which are much smaller than Suezmaxes — were paying more than half a million dollars for a seven-day transit from the Red Sea region, said a North Asia-based chartering executive with a global commodities trading company.

Since the ship has to ballast back on the same route, if it picks up cargo again in the Red Sea, the actual AWRP will be double this amount, the executive said.

LR2s have risen over 25% in the last four trading days on the Persian Gulf-UKC routes to $5.65 million Jan. 22, basis Suez routing, according to Platts data from S&P Global Commodity Insights. This implies that they have to cough up close to $6.4 million-$6.65 million for voyages via the Cape.

Increased Diversions

One major fallout of the Bimco & Intertanko advisories just over 10 days ago is that now many tankers are using the Cape option for cargo deliveries into Europe, freight market participants said. Earlier, the option to use the Cape route was there in the charter party agreements but was scarcely used.

Dozens of tankers have already been diverted since US and UK forces launched counter-strikes against the Houthi rebels in Yemen late last week. “Some of the fixtures are now only being done basis the Cape option, with no Suez option available at all,” a senior executive at a major oil tanker company said.

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Source: SP Global

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