- Ongoing attacks by Yemen-based Houthi militia in the Red Sea have led to increased shipping times and freight rates as some vessels opt to avoid the Bab el-Mandeb chokepoint due to safety concerns.
- Ships transiting between Europe and Asia through the Suez Canal must pass through Bab el-Mandeb, making it a crucial oil and natural gas chokepoint.
- Major energy companies, including Equinor, bp, Euronav, QatarEnergy, Torm, Shell, and Reliance, are avoiding Red Sea transits.
- Vessels opting for longer routes around the Cape of Good Hope face significant delays, adding pressure on freight rates due to higher fuel costs and fewer available ships.
Safety Concerns Alter Shipping Routes
Ongoing attacks by Houthi militia in the Red Sea have prompted some vessels to avoid the Bab el-Mandeb chokepoint, opting for longer routes around the Cape of Good Hope. The Bab el-Mandeb Strait is a critical oil and natural gas chokepoint, accounting for a significant portion of seaborne oil and LNG trade. Major energy companies, including Equinor, bp, Euronav, QatarEnergy, Torm, Shell, and Reliance, have suspended Red Sea transits as of January 23, 2024, citing safety concerns.
Impact on Voyage Times and Freight Rates
Vessels circumventing the Red Sea face longer voyages, leading to increased freight rates. For instance, a typical voyage from the Persian Gulf to the Amsterdam-Rotterdam-Antwerp petroleum trading hub takes 19 days via the Suez Canal but nearly 35 days when taking the Cape of Good Hope route. Longer routes contribute to higher fuel costs and necessitate more ships to maintain delivery schedules, putting upward pressure on freight rates.
Reduced Flows and Global Impact
The attacks have resulted in slowed flows of oil, refined products, and natural gas through the Bab el-Mandeb Strait. Crude oil and clean petroleum product flows recorded declines of 18% and 30%, respectively, in December compared to the average from January to November 2023. LNG flows decreased by 24%, while LPG flows increased by 1%. The Combined Maritime Forces’ warning to avoid the Bab el-Mandeb Strait in January 2024 is expected to further reduce passages.
Insurance Premiums and Rate Increases
Elevated risk insurance premiums for routes passing through the Red Sea have contributed to an average 20% increase in clean petroleum product tanker rates in December compared to November. Rates for routes traversing the Red Sea, such as long-range 1 tankers from the western coast of India to the UK Continent, experienced a 23% increase. Dirty tanker rates, primarily transporting crude oil, have remained relatively stable since November.
Global Trade Implications
The Red Sea’s heightened geopolitical risks and the resulting impact on shipping routes and rates have implications for global trade. Major companies and shipping routes are adjusting strategies to navigate these challenges, emphasizing the importance of geopolitical stability for the maritime industry.
Did you subscribe to our daily Newsletter?
It’s Free! Click here to Subscribe
Source: EIA
