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Global Sea Logistics – External Market Update

Red Sea Situation

Status: March 8th, 2024
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8 MARCH

Red Sea situation

As widely reported in the international press, Houthi Rebels are currently

still conducting attacks on commercial vessels in the Bab al-Mandab
Strait (not at the Suez Canal directly). This narrow water passage,
situated off the coast of Yemen, serves as the entry/exit point to the Red
Sea. Following the conflict between Israel and Gaza, the Houthi Rebels
declared their intention to launch attacks against any vessel associated
with Israel in any capacity.

The Houthi Rebels have escalated their attacks, involving the launch of
missiles and drones at various vessels. This week, three seafarers were
killed in a Houthi attack, creating the first fatalities since the beginning of
these strikes. The targets of attacks continue to include container ships,
tankers, and bulk carriers. It is noteworthy that not all these vessels have
had any affiliation with Israel, nor were they transporting cargo to or from
Israel.
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Facts on the Suez Canal

The Suez Canal plays a critical role in global trade, handling

approximately 30% of all worldwide container traffic and facilitating
the transport of over $1 trillion worth of goods annually. As the longest
canal in the world without locks, it serves as a vital link connecting the
Red Sea to the Mediterranean Sea.

Since its navigable opening in 1869, the Suez Canal has undergone
several expansion works, enhancing its width and depth. This strategic
waterway allows vessels to traverse from the Red Sea to the
Mediterranean Sea in just 12 to 16 hours, a significant time-saving
measure for the average vessel (with an additional 10 navigation days in
the Red Sea).

Operational day and night, the canal boasts an impressive average of 70

passages each day. In the fiscal year 2022/2023, it recorded a total of
26,000 passages, of which 9,000 were attributed to container ships. This
substantial traffic contributes significantly to the canal's economic impact.

Generating a revenue of 8.8 billion dollars, the Suez Canal stands as

Egypt's second-largest economic resource, constituting approx. 2% of the
country's GDP. It represents the most crucial source of hard currency,
bringing in an income of around 24 million dollars per day, underscoring its
paramount economic significance for Egypt.
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Attacks on multiple ships continue

In recent weeks, the attacks have resumed and the first

fatalities have occurred on the Barbados-flagged True
Confidence, a cargo ship in the Gulf of Aden In addition, the
“Rubymar”, a bulk carrier sailing under the flag of Belize,
sank in the Red Sea after it was hit by a missile, making it the
first total loss of the Houthis campaign

Houthi rebels employ relatively simple methods, such as

utilising drones for attacks, making it exceedingly difficult to
prevent them entirely. Additionally, the Bab al-Mandab strait
is very narrow. This narrowness allows Houthi rebels to
swiftly retreat to the shore after launching attacks, leaving
Allied navy vessels primarily engaged in preventive
measures.
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Carrier reactions

The current situation shows no signs of improvement, as

indicated by a statement from a major global carrier to
Kuehne+Nagel. The carrier emphasised their stance on the
matter:

"As long as there is warfare in the area, we will not

jeopardise the safety of our seafarers, ships, and cargo.
Even with military protection, if the zone remains a warfare
zone, we will refrain from putting our assets at risk."

This underscores the carrier's commitment to prioritising the

well-being and security of their personnel and assets in
regions affected by conflict.
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Carrier reactions

▪ MSC: NO RED SEA

▪ Hapag Lloyd: NO RED SEA
▪ CMA CGM: CASE BY CASE
▪ EVERGREEN: NO RED SEA
▪ Yang Ming: NO RED SEA
▪ Maersk: NO RED SEA
▪ COSCO: NO RED SEA
▪ ONE: NO RED SEA

It is important to underline that the decisions made by these

carriers apply exclusively to the ships they operate. CMA-CGM
recently announced that they will review service via the Suez
on a case by case basis
Considering that they are all part of alliances based on Vessel
Sharing Agreement (VSA), it is essential to note that booking
with a carrier that may favours the passage of the Red Sea
going forward again does not guarantee its transit.
In fact, that specific ship or departure could be operated by a
different carrier within the alliance, which may will declare a
different position regarding the Red Sea passage.
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Are we in a “new normal”?

Despite the efforts of the Allied navy vessels, stability in the

region remains elusive, and it is unclear when it will be fully
achieved. Ongoing geopolitical tensions and the complex nature
of the situation contribute to the uncertainty surrounding the
timeline for establishing a lasting and secure environment in the
affected areas.

Avoiding the Red Sea and opting for the longer route around
Africa via the Cape of Good Hope has become the "new
normal" for vessels, significantly impacting capacity and
extending voyage durations.

Carriers are adapting to this reality, treating it as a long-term

scenario rather than a temporary issue, unlike past emergencies
such as the Ever Given blockage in the Suez Canal.
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Carriers managing the “new normal”

The Dragon Service illustrates well how carriers have managed the Note: The service is rerouted;
situation by optimised fleet allocation, e.g., through making use of seaexplorer displays the original
route in grey, but also the vessels
all the new build capacity and moving vessels from short sea / back
being diverted around Africa
haul loops into the long haul ones.

▪ Dragon Service: Originally operated by 6 ships, now efficiently

managed by 14 ships.
▪ All ships strategically positioned for optimal port calls, ensuring
required frequency. January 11, 2024
February 2, 2024
This is one of the 2 key reasons why we haven`t seen and probably
will not see the expected capacity crunch to materialise. The other
reason is the low demand. Despite the Chinese New Year (CNY),
demand remains lower than expected.

The shipping industry is adapting to disruptions with strategic fleet

management. While challenges persist, the current trend indicates a
shift in trade dynamics. Ongoing monitoring and flexibility will be
crucial for navigating the evolving landscape.