Container Bytes #48: Escalating Red Sea Security and the AI Air Freight Boom

There's new drama in the Middle East, this time from the Houthis, as they've taken control of a port and island directly on the Red Sea's Bab el-Mandeb strait.

What could this mean for container shipping?

So the Houthis basically until now had been in control of the elevated ground, maybe a few tens of miles away from the coast.

Um, and now they have seized kind of these strategic port and island which are directly on, um, the strait, which is that very narrow part of the Red Sea that passes by, um, the coast of Yemen.

So as we know, the, the Houthis had no difficulty attacking ships and basically diverting the vast majority of container traffic since twenty twenty-three, even from that higher position.

But this certainly means kind of, uh, a solidification of their control and kind of an escalation of the threat.

Um, this advance probably has a bigger impact on, uh, or, or a threat to, um, crude oil flows because there are a lot of oil tankers that are going through there, especially from Saudi Arabia.

Um, and there's been, uh, an attack by another, uh, I- Iranian proxy group probably, um, on a Saudi pipeline also this week.

So these are kind of increasing the threats to global, uh, energy, uh, flows, and I think that's the point.

Um, some experts watching crude oil prices and looking at bunker prices as well see that they've gone back to kind of highs we haven't seen since May.

Um, now prices were already elevated above pre-war levels, but this is kind of a back to higher level than we saw before.

Um, and so it seems that, you know, with the prospect that the Hormuz is not opening anytime soon, the strategies that we've been relying on, which a lot of it has been drawing from, uh, reserves, especially for China, uh, it seems like those are kind of wearing thin, and it could lead to an actual fuel crisis, which basically we've had high fuel, uh, cost, but not a, a real fuel crisis or real shortages just yet.

And so that's kind of the, the threat and the, and the significance.

And that has significance for container shipping in terms of, of price, uh, you know, in terms of, uh, fuel costs and therefore, uh, freight rates.

But, um, you know, you would think that this would have a impact on steps that carriers have taken back towards the Red Sea because we've seen increases, um, basically since June.

When there are increased threats, what we've seen before is that carriers that started going back to the Red Sea turned around, and that's not what we're seeing now, really surprisingly.

Um, so according to, uh, estimates made by Sea Intelligence, more than a quarter of Asia-Europe capacity will go through the Red Sea in September.

Um, much more on Asia-Mediterranean than Asia-North Europe.

For Asia-Mediterranean, it's also much more on the back haul, about fifty percent compared to the, uh, head haul, which they estimate thirty-five percent.

North Europe is something only like six percent of head haul and thirty percent of back haul, but this is much more than we've seen, you know, at any point since late twenty twenty-three.

Um, and I think the calculus here is that there are much higher fuel costs and also really significant congestion, both in North Europe from just kind of persistent condu- congestion, and we also have low water levels in the Rhine.

And now the real congestion is also in the Far East, where we've had just typhoon after typhoon.

That has really caused significant congestion that continues and might continue until even after, uh, Golden Week and into October.

Okay.

Is the increase in the Red Sea transits also impacting container rates?