Back in early 2024 in Issue 110 of this publication, we introduced the VUCA (Volatility, Uncertainty, Complexity, and Ambiguity) concept. In our conclusion, we underlined the difficulty in finding a solution to the Red Sea diversions by stating that ‘unless there is a sudden change of heart by all affiliated parties in the Israel-Hamas conflict, any measures to mitigate the Red Sea crisis might be akin to an attempt to un-tie the proverbial Gordian Knot’. In a nutshell, we proposed that the Red Sea diversions should last, at the bare minimum, for the full length of this calendar year. Subsequently it was estimated at the time that, there should be “a stubborn stickiness” to shipping rates , especially to those segments most impacted.
Thus far, this hypothesis has withstood the passage of time, and it is appropriate to now reflect on the impact of rerouting for both shipowners and operators and how the situation may evolve heading into 2025.
For the 10 (load) months of 2024, laden bulker transits (by count) have dropped by more than 2,500, with geared bulkers (<68,000 Dwt) bearing the brunt. Ultramax’s (60-68,000 Dwt) laden transits dropped more than 500, while those of Supramaxes (50-60,000 Dwt), Handysizes (25-40,000 Dwt) and Minibulkers (3-25,000 Dwt) have declined by more than 300, 450, 200, respectively, over the same period. This represents a loss amounting to just over 1,500 laden transits of geared vessels via the Suez Canal. On the other hand, the decline of the mid-sized Panamax segment (68-100,000 Dwt) is close to 600, while those of the large-sized fleet (>100,000 Dwt) is under 400.
In essence, Red Sea diversions had a disproportionate impact on geared tonnage. The above statistics suggest (to a certain extent) why S10TC and HS7TC rates in the second half of 2024 (in particular in November) remained resilient while the rest of their peers lose momentum against a lacklustre demand-side backdrop.
Looking at the chart below, over the last few years, the trend was to rely on the Suez Canal to facilitate quicker international bulker trades (especially for small parcel sizes). In fact, 2023 had been a record year for laden bulker transits through the canal. Furthermore, the monthly figures in 2024 have been on a sequential decline (represented by the red arrow).
For instance, back in 2023, geared parcels ex-US headed to India/China (via Suez Canal) totaled 13.6 mln mt. That figure eviscerated to just under 150,000 mt in 2024 according to AXSMarine data, as ships ditched the Suez Canal in favor of the Cape of Good Hope. Meanwhile, the drop in Kamsarmax laden transits is led by a diversion of ‘US to China’ shipments (mainly soybean corn, coal etc) which went from 8.8 mln mt in 2023 to just 150,000 mt year-to-date 2024.
As a side note, breaking down the present numbers for Capesize’s laden transits, the decline is mainly attributed to a fundamental lack of demand for Russian coal by China and India, not because of rerouting decisions. Russia's coal industry faced a crisis following the 2022 invasion of Ukraine, as the European Union banned Russian coal imports. This forced exporters to shift focus to Asia, which initially procured Russian supplies at significant discounts. However, these discounts had diminished by mid-2023, compounded by logistical challenges (rising costs of railway, freight and port services) which further limited its appeal to Chinese and Indian buyers. On the other hand, if it were not for the re-emergence of Ukrainian iron ore shipments in 2024 which were exclusively shipped via Suez, the annual decline would be even uglier.
However, when we turn our attention to the ballast bulker transits via Suez Canal, the impact of the Houthis’ attacks appears more moderate. For the 10 (discharge) months, the y-o-y decline in ballast transits amounts to less than 300. There is still a substantial number of shipowners that are risk-adverse towards heading via Suez when carrying cargoes but decide to brave the dangers when repositioning back to loading areas. In fact, Panamax (68-79,000 Dwt) ballast transits have risen slightly y-o-y, led by improved ballasters count ex-India/China to Ukraine (for grain loadings).
Overall, the dry bulk industry has avoided a complete blockage of vessel movements through this important trade artery. Hence, geared rates did not soar to anywhere near their highs posted in 1H21 when S10TC and HS7TC averaged $21,014/day and $19,511/day, respectively. For context, in March 2021, the Suez Canal was blocked for six days by the grounded MV Ever Given containership.
As of writing, it appears that the Red Sea Crisis should last at least until mid-2025. Since Trump won his return ticket to the White House, the Houthis have not signaled any pullback in their campaign. As a matter of fact, back in mid-November, it was reported that the Yemen-based rebels commenced an assault against two US Navy destroyers and three US supply ships navigating the Gulf of Aden. Indeed, a Houthi military spokesman declared that their military actions would intensify within the designated maritime operations zone and would only cease if the aggression ends and the blockade on the Gaza Strip is lifted. Moreover, it would be optimistic to wager that Houthi’s attacks will simply dial back even if, for whatsoever reasons, Iran’s position in the Middle East weakened in the foreseeable future. While the Houthis in the past, had viewed themselves as subordinate to Iran, their success on the seas could have emboldened them to act independently irrespective of prevailing circumstances.
Notwithstanding above, should peace and order be restored before 1H25 (perhaps a lack of funding to Houthis if Iran’s oil revenues are cut off down the road), then we might see a repeat of 2022 where freight rates were firm for geared tonnage in the first half of the year due to trade disruptions caused by the Ukraine-Russian War, but thereafter cooled down in the second half. On the contrary, should Houthi attacks fail to cease for the whole of 2025, then we should reasonably expect another bottom-up push/cushion in rates for S10TC and HS7TC the following year.