Following a temporary ceasefire in Gaza, which initially reduced Houthi attacks in the Red Sea, renewed tensions have emerged. Israel’s decision not to proceed with the second phase of the ceasefire and the continued blockade of humanitarian aid to Gaza have prompted the Houthis to announce their resumption of naval operations against Israeli-linked vessels in March, reports Breakwave Advisors.
New Concerns
The ceasefire in the region has broken down, with Israel conducting significant airstrikes in Gaza, escalating hostilities.
This escalation has renewed concerns within the shipping industry about the safety of navigating the Red Sea.
The market remains cautious, with trade volumes still approximately 70% below 2023 levels, and more bulk carriers and tankers bypassing the Red Sea.
U.S. military strikes against Houthi rebels are aimed at curbing Iranian influence, protecting trade flows, and reducing risks for commercial vessels in the Suez Canal.
In the mid-term, these strikes could potentially restore confidence among shipowners, encouraging them to resume Red Sea transits. The persistent Houthi threat has forced vessels to reroute via the Cape of Good Hope, leading to longer voyages, higher emissions, and increased operational costs.
Multifaceted Impact
If security stabilizes and normal trade resumes in the Red Sea, several effects on global shipping are expected:
- Reduced Ton-Miles:
- Shorter voyages on key routes like Asia-Europe would decrease ton-mile demand.
- Increased Fleet Availability:
- Faster vessel turnaround times would increase the active fleet’s capacity, adding to tonnage supply.
- Downward Pressure on Freight Rates:
- Reduced ton-miles and increased fleet availability could lower freight rates, especially in sectors with oversupply, like containerships.
- The containership sector is heavily affected by red sea rerouting, adding about 11% to overall demand.
- Market Evaluation:
- Despite potential increased confidence from U.S. military actions, market players are closely monitoring the security situation and operational risks.
- If the U.S. actions successfully deter Houthi attacks, a period of stability could lead to a gradual return to normal trade routes.
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Source: Breakwave Advisors
