Extended Journey Times and Soaring Shipping Rates
As a result of recent Houthi attacks, many shippers have chosen to reroute their cargo around Southern Africa via the Cape of Good Hope, leading to longer journey times. Raymond James analyst Rick B. Patel explains that this route, although lengthier than the Suez Canal, has become necessary to avoid disruptions caused by the attacks. These diversions, however, have resulted in shipping delays and an increase in shipping rates.
For now, the Red Sea supply chain issues primarily impact costs and delays, but companies with substantial revenue from Europe, such as Ralph Lauren Corp., Skechers USA Inc., Capri Holdings Ltd., and Nike Inc., are at higher risk if the disruption persists, says Patel.
Additionally, Patel highlights the drought conditions affecting transit through the Panama Canal, suggesting that Western ports may benefit from increased volume if ongoing issues persist. This could potentially favor companies like J.B. Hunt Transport Services Inc. and Western rails Union Pacific Corp. and BNSF Railway.
Tightening Global Shipping Market and Opportunities in the Shipping Industry
The conflict in the Red Sea region is causing a tightening in the global shipping market, with container costs rising across various global routes, particularly from China/Asia to the U.S., as noted by Patel.
Despite the challenges, the Red Sea disruption is creating temporary opportunities in the shipping industry, especially for crude tankers and mid-sized vessels, which are experiencing high demand against limited supply, according to Stifel analyst Benjamin J. Nolan. Dry bulk shipping also faces tight supply conditions but requires increased demand from China to drive rates higher.
While the Red Sea disruption has positively impacted box rates, the container sector may face pressure from an excessive order book, potentially driving rates lower, cautions Nolan.