- Houthi Pause Signals Turning Point for Red Sea Shipping.
- Shipping Eyes Suez Return as Risks Ease Cautiously.
- Suez Canal Recovery to Be Gradual Amid Residual Risks.
The Red Sea crisis has now stretched into its third year and has recently taken a new turn. On November 11, Yemen’s Houthi movement declared a pause on attacks against Israel and commercial shipping in the Red Sea. This was the first official acknowledgement of a halt in hostilities since the Gaza ceasefire began on October 10. This announcement has sparked fresh conversations within the shipping industry about the possibility of returning to normal navigation through the Red Sea and the Suez Canal, reports Break Wave Advisors.
Shipping Lines Show Interest, But No Set Timelines
In the wake of this statement, major shipping companies have confirmed they are in talks with Egypt’s Suez Canal Authority about potentially restoring services. However, none have set a definitive timeline just yet. This cautious approach highlights ongoing security concerns. While the risks have lessened, they haven’t vanished entirely, and a sustained period of stability will be necessary before large-scale rerouting can resume.
Why Suez Volumes Will Take Time to Bounce Back
Container shipping makes up the bulk of Suez Canal traffic, while dry bulk only accounts for about 20%. Therefore, the sentiment among liner companies is a strong indicator of overall recovery trends. Unlike the quick rebound seen in Panama Canal transits after drought conditions improved, Suez traffic is expected to recover more slowly, hampered by geopolitical uncertainties, insurance costs, and a general sense of operational caution.
Looking Back at Dry Bulk Transits
From 2021 to 2023, laden Capesize transits through the Suez Canal hit nearly 95 million tonnes annually. However, this surge was fueled by a unique set of circumstances—particularly high freight rates and unusual coal trade patterns, which are unlikely to happen again. Thus, these years should be seen as a peak rather than a standard to aim for.
High Freight Rates Once Favoured Suez Routing
Back in 2021, Capesize freight rates were cruising above $33,000 a day, which led to a surge in the use of the Suez Canal. The shorter travel times meant bigger profits. For instance, taking the Suez route for a Canada–China iron ore journey saved about nine days and around 300 tonnes of fuel, leading to savings close to $1 million for each round trip—far more than the canal tolls. In that scenario, Suez was clearly the go-to route.
Coal Trade Distortions in 2022–2023
Even though freight rates dropped in 2022 and 2023, Suez transits saw a rise due to skyrocketing coal prices after the Russia–Ukraine conflict. The high prices made long-distance coal shipments financially feasible, especially for exports from Russia’s Baltic ports to Asia via Suez. During this time, coal volumes through Suez soared from around 10 million tonnes to over 45 million tonnes annually. However, as coal prices began to stabilise, these long-haul trades became less viable and are unlikely to bounce back—even if the risks in the Red Sea completely disappear.
Outlook for Iron Ore Flows
Some dry bulk trades are in a better spot for recovery: Canadian iron ore shipments to Asia were rerouted around the Cape instead of being completely cut off. Once things settle down, a return to the Suez route seems very likely. Ukrainian iron ore still heavily depends on Suez, with few alternative paths available. If insurance and security costs decrease, it could gradually become more competitive, although the ongoing war-related risks continue to pose a significant challenge.
What a “Normal” Suez Recovery Looks Like
Instead of bouncing back to the nearly 100 million tonnes we saw in 2021–23, a more realistic expectation for laden Capesize transits is around 50–60 million tonnes each year, provided that security improves and freight conditions remain favourable. However, it’s important to see this as a potential upper limit rather than a short-term prediction. Given the cautious nature of the shipping industry, along with factors like insurance costs, the slow redeployment of fleets, and changing trade patterns, we’re more likely to see a gradual recovery rather than an immediate surge.
Implications for the Dry Bulk Market
A slow return to Suez transits suggests a gradual decline in tonne-mile demand instead of a sharp drop. Ship owners and charterers will likely keep a close eye on the early movers, with broader confidence only returning after a period of stability and clear commitment from key players in the industry.
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Source: Break Wave Advisors
