Shipping companies are avoiding the Red Sea for safety reasons as well as commercial interests, some industry observers said Feb. 19, even as a limited but increasing number of players are returning to the region.
Yemen-based Houthi militants claimed to have attacked over 130 ships since the Israel-Hamas war broke out in October 2023, prompting most ship operators to steer away from the Suez Canal in favor of longer routes around Africa.
While the rebel group said Jan. 19 the attacks would stop as part of the Israel-Hamas ceasefire agreement, except for ships wholly owned by Israeli interests or flagged in Israel, ship traffic has remained far below the prewar level.
“The ceasefire discussions haven’t provided the confidence that our clients required to reroute 100% back through the canal, and we don’t really anticipate that changing for the foreseeable future,” Chris Greenwood, vice president for survey and inspection at ship agency Inchcape Shipping Services, said during a webinar.
Latest IMF PortWatch data showed the average daily ship transits via the Bab al-Mandab Strait stood at 31 in the week ended Feb. 9, compared with the normal level of more than 70.
War risk premium climbs
The additional war risk premium for a ship transiting through the Red Sea has risen from 0.05% of hull value before the war to 0.7% before a further a hike to 1%, and lead underwriters are likely to require “material changes” in security situations before lowering their premiums significantly, Greenwood said.
The diversions have also led to a 4.5% increase in ton-mile demand for dry bulk carriers, 7.5% hike for product tankers, and 17% in TEU-mile demand for container ships, disincentivizing shipping companies from a swift return, Greenwood said.
“It would also be slightly disingenuous of us not to mention the fact that in a number of sectors, there is a commercial interest for them not to go back through the canal,” Greenwood added.
Tanker rates spiked at the beginning of 2024 due to more ship diversions amid intensified Houthi attacks before falling back to prewar levels due to other supply-demand factors, according to assessments and market reports by Platts, part of S&P Global Commodity Insights.
But the Platts Container Index, a weighted average of spot rate assessments on key routes, reached $5,272.50/FEU Jan. 3, its highest level since the summer of 2022, before easing back to $3,017/FEU Feb. 18. It was below $1,000/FEU before the war.
Red Sea transits
CMA CGM, one of the world’s top three container lines in shipping capacity, recently announced a new weekly service involving ships sailing between India and Saudi Arabia via the Red Sea from after seeing “progress toward greater stability,” according to its website.
Meanwhile, the EU has said its navy operation in the region, Eunavfor Aspides, will remain until at least Feb. 28, 2026 to protect freedom of navigation.
But Daniel Mueller, an intelligence analyst at consultancy Ambrey, suggested the security situations in the Red Sea remained uncertain as the Houthis continued to build their inventory of weapons.
The Israel-Hamas ceasefire agreement reportedly involves three six-week stages, during which the two sides will complete swaps of prisoners before finalizing a permanent peace deal. The Houthis have vowed to resume their attacks if the ceasefire doesn’t last.
“We may still be talking months until there’s clarity,” Mueller said during the webinar.
