Some 50 percent plus
Shipping company shares soar – crisis in the Red Sea attracts investors
By Jürgen Wutschke
January 7, 2024, 2:14 p.m
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Due to attacks by Houthi rebels on freighters in the Red Sea, some shipping companies are now avoiding the important passage. For the detour around Africa, they are massively increasing the fees for container transport. Investors pounce on the ship operators’ papers.
The Red Sea is one of the comparatively smaller seas on earth. In terms of water surface, it is slightly larger than the Baltic Sea. But the almost 2,240 kilometer long sea is currently one of the most dangerous waterways in the world – especially since mid-November. After several attacks by Houthi rebels on cargo ships, some shipping companies are avoiding the connection and taking a detour of thousands of kilometers. This makes the movement of goods more expensive – and pleases investors. The shares of Maersk, Hapag-Llyod and Co. have only known one direction for several weeks, and it is pointing steeply upwards.
The problems started a few weeks ago. The Iran-backed Houthi rebels in Yemen declared their solidarity with the radical Islamic Hamas and announced attacks on ships that had ties to Israel. A US-led military alliance is now patrolling the region. Germany is still considering how to participate. Shortly before the turn of the year, the responsible US military command reported 22 attacks on freighters. At the end of November, for example, armed attackers hijacked the oil tanker “M/V Central Park” belonging to a British company affiliated with Israel.
Additional costs of several hundred thousand dollars
Two figures make it clear how significant the consequences of the Houthi attacks are for global goods traffic: According to the International Chamber of Shipping (ICS), twelve percent of world trade is carried out via the Red Sea, which, together with the Suez Canal, Bab al-Mandeb and the Gulf of Aden connects the Mediterranean with the Indian Ocean – in short, Asia with Europe. A good third of the world’s container freight is handled via this route.
If shipping companies want to avoid the dangerous passage, they have to redirect their container giants around the Cape of Good Hope at the tip of South Africa. “For an average ship traveling from Asia to Europe, the journey could be extended by six days,” says Andreas Krieg, professor at King’s College in London. So far, more than 180 ships have already been rerouted around the southern tip of Africa Technology company Project44, which specializes in supply chain management, even speaks of a 7 to 20 day longer journey.
Fuel costs alone rose by up to $400,000, says Krieg. There are also further personnel expenses. And insurance companies also demand higher premiums. The good news for consumers is that expert Krieg expects that these costs will not make it onto the price tags in stores for a few months.
Shipping companies charge surcharges – stocks take off
However, the situation is different for companies that already ship their goods. The French shipping company CMA CGM has significantly increased its fees for passage from Asia to the Mediterranean and doubled the freight rates for container transport. As of mid-January, she will be charging $6,000 for a 40-foot container, as she recently announced. Prices to the Eastern Mediterranean, the Adriatic, the Black Sea and Syria were also drastically increased. According to international freight booking platform Freightos, prices have more than doubled this week to over $4,000 per container. Between Asia and the Mediterranean they rose to $5,175.
The Danish container ship giant Maersk is now avoiding the region after the “Maersk Hangzhou” was hit by an object near the Bab al-Mandab Strait last Saturday. A later attack by four small boats was repelled by a military helicopter and the ship’s security team. The German competitor Hapag-Llyod is also avoiding the region. “We are monitoring the situation very closely every day, but will reroute our ships until January 9th,” said the world’s number five container shipping companies.
Hapag-Llyod diverted 25 ships in the last two weeks of the year alone. The additional costs for Germany’s largest shipping company amounted to a double-digit million amount, as a company spokesman said. The specific amount of the surcharges depends on the travel area. Depending on the route, there are also delays of between one week and three weeks. Hapag-Lloyd does not see much scope to change this. “Unfortunately there is little that can be done to counteract this, except for driving faster, which we sometimes do, but which in turn increases fuel consumption,” explained the spokesman. On the routes from the Far East to the Mediterranean, to Northern Europe and to the US east coast, there are no alternatives to rerouting via the Cape of Good Hope at the tip of South Africa.
And this is where shareholders come into play: The share prices of the companies concerned have risen since the attacks in the expectation that longer routes will lead to higher freight rates and thus significantly higher revenues. The assumption has now come true – and so the papers are in great demand. Shares in the shipping company Maersk were available at the beginning of November for just over 1,300 euros each. They are now approaching the 1,850 euro mark – an increase of a good 40 percent.
Hapag-Lloyd shares were worth just over 100 euros in mid-December – they are now trading at 173 euros. The shares of Israel-based Zim Integrated Shipping Services Ltd. – among the top ten worldwide – have more than doubled to over 12 euros since the end of November. Since the beginning of November, the Japanese shipping company Mitsui has gone from 23 to 31 euros per share. The securities of the competitor NYK Group, which also comes from Japan, now cost 30 euros, after they were still available for 21 euros at the beginning of November. The shares of the Greek shipping company Euroseas currently cost 32.90 euros, ten euros more than at the beginning of November.
Analyst: Short-term effect
Meanwhile, analysts at US bank JP Morgan have significantly raised their forecasts for Hapag-Lloyd, Moeller-Maersk and Zim for the current year. Daily transit traffic through the Suez Canal has declined in volume by around 75 percent, with no signs of recovery yet. This development will have a significant impact on freight rates.
The experts estimate that freight rates on certain routes could have increased 4 to 5 times. The contracted rates on these routes are currently being negotiated and it appears likely that the contracts will now be priced higher than would otherwise have been the case.
On the other hand, they do not believe that this will change the existing oversupply. The increase in cash flow is treated as a one-time event. The extent of this cash flow boost depends on the duration of the disruption, which they cannot predict with certainty.