Shipfix Cargo Orders Indicate Fewer Bulkers Will Transit the Red Sea
The tensions in the Middle East show no signs of easing, with developments in recent days pointing towards escalation and a broadening of the affected area. For commercial shipping, the evolving situation in and around the Red Sea is presenting the industry with new challenges. The increasing risk of vessels being attacked by missiles, drones and small boats has led to many opting for the longer, but safer, route around Africa’s Cape of Good Hope.
The container and tanker trades have grabbed much of the headlines as they are perceived to be most affected by the deteriorating security situation. However, recent days’ attacks targeting dry bulk vessels could see a broader pullback from the sector, with fewer transits through the Suez Canal. While the major dry bulk trade routes avoid the Red Sea, there is still significant regional trade that utilises the passage. Hence, dry bulk freight demand is likely to face two opposing developments. On the one hand, vital trade could be rerouted around Africa, delivering a significant increase in tonne-mile demand. On the other hand, the increased voyage could also impose prohibitive freight costs and reduce trade volumes.
As highlighted in a previous post in the middle of December, Shipfix’s forward-looking cargo order data signalled a decline in demand for eastbound seaborne transportation of dry bulk commodities that could transit the Red Sea amid rising tensions in the region. Since then, cargo order volumes have remained under pressure amid the ongoing escalation.
The types of cargoes primarily affected are agricultural commodities and fertilisers shipped from the Black and Baltic Seas to the Arabian Gulf and India. While seasonal weakness plays some part, compared to recent years’ patterns, the relative decline is more substantial and spans a more extended period. The past week saw cargo order volumes for agricultural commodities around 75 per cent below the average for November, while fertilisers were nearly 50 per cent short of the mean.
In absolute terms, the lower demand for east-going seaborne transportation of dry bulk commodities from Europe and the Mediterranean has been especially negative for the smaller vessel segments. Since November, the demand for handysizes and handymaxes has declined by around a third, while the supra/ultramaxes have seen a drop of more than 65 per cent.
Given the forward-looking nature of the Shipfix data set, the continued weak cargo order volumes for exports of dry bulk commodities from Western Europe and the Mediterranean suggest that fewer bulkers will transit the Red Sea in the near future.
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