The latest escalation between Israel and Iran could affect the global sea freight market.
Increasing risks on routes in the Middle East and detour of shipping lines mean that higher freight rates can be expected, according to the analysis. South Korean shipping companies such as HMM and Pan Ocean are seen as potential winners.
This was reported by the South Korean business magazine ChosunBiz, citing iM Securities. According to the report, many shipping companies are currently avoiding the Suez Canal as attacks by the Houthi militia in Yemen are making the passage through the Red Sea unsafe. Instead, traffic is increasingly shifting to the route around the Cape of Good Hope. The route leads to longer transit times of ten to twelve days between Asia and Europe and extends the route by 3,500 to 4,000 nautical miles, depending on the port of departure and destination. This means significantly higher fuel costs and longer turnaround times per ship.
According to iM Securities, this leads to an increase in the so-called ton-mile value of around 11%. This indicator combines transported volumes and distances and is considered a key factor in freight rate trends. This increase is by no means marginal – especially if the detour last for months and tighten supply.
The effect is not the same everywhere. Prices react particularly sensitively when ships are traveling longer distances and available freight space becomes scarce, as is currently the case between Asia and Europe. Even minor bottlenecks can then lead to noticeable surcharges.
Strait of Hormuz remains a geopolitical bottleneck for shipping companies
The Strait of Hormuz is one of the most important routes for global oil and LNG transportation. Over 20% of global crude oil passes through this strait between the Persian Gulf and the Gulf of Oman. A blockade by Iran would massively disrupt energy trade, but is considered unlikely. According to iM Securities analyst Bae Se-ho, Tehran has threatened a blockade several times since 2008, but has never carried it out.
One reason for this is China’s dependence, which covers 43% of its crude oil and around 24% of its LNG requirements via this route. Without coordination with Beijing, such a step seems unrealistic. Even in the event of a partial closure, the route through Omani waters would remain open.
HMM and Pan Ocean are well positioned
Why are HMM and Pan Ocean benefiting in particular? Both are strongly active in the Asia-Europe and transpacific trade, operate modern, flexible fleets and have their own liner services. With rising freight rates, this pays off in particular, as those who operate their own liner services earn directly from the market instead of being satisfied with fixed charter income.
Whether the upward trend continues depends on the duration of the detour and the geopolitical situation. If the situation in the Red Sea eases, freight rates could fall again quickly. Temporary bottlenecks rarely lead to permanent market shifts.
In the short term, however, the combination of longer routes, political risks and higher insurance costs suggests that prices will continue to rise – especially for large liner shipping companies with a focus on the Asian market. (rup)
