We have received many questions about the effect of the Red Sea disturbances on the Suez canal and the world’s shipping fleets over the past couple of weeks.

There are a number of uncertainties relating to this, such as whether the canal will actually be closed or whether  it will stay open, and if it stays open how many operators will still want to use it given the war-like conditions through the Red Sea which needs to be transited enroute to or from the canal..

• In general,  bigger ships that carry more valuable cargoes  will be  more prone to sail round the Cape of Good Hope, whilst smaller ships with less valuable cargoes may carry on using the canal until it becomes impossible to do so;

• The US and other Western navies have demonstrated an ability to intercept missiles and drones both in the Mediterranean  and in the Red Sea in recent weeks, and most likely they  have the ability to take out the launch sites if they chose to do so, however this would be an escalation of the Gaza war that they are probably reluctant to instigate;

• Rerouting of ships will tighten the market as ships will take a longer time and sail a longer distance to deliver their cargoes,  and in those sectors where utilisation is already high, there may be demand destruction – i.e. rates may rise to the level where customers accept increasing delays or non-deliveries as happened during the Covid epidemic;

• The fleet has done more shipping work this year than in any previous year as ports have become more efficient and less congested as a natural normalisation after the Covid disruptions;

• The Panama Canal has suffered drought conditions in the second half of the year – leading to more ships having to find alternative routes. Some of the ships – especially LPG carriers having been rerouted through Suez on the way from the Gulf of Mexico to East Asia;

• At the time of writing, the flows through the Suez Canal have not slowed down materially, though a number of operators have announced they will avoid the canal and reroute ships around the Cape of Good Hope;

• In the short term many operators will lose money from the extra distances sailed and time lost, but in the longer term if the trouble persists, the shipping  rates will go up to reflect the higher costs and less effective supply as happened during Covid;

• Oceanic monitors real time shipping movements on a daily basis, and the state of shipping demand and movements through the Panama and Suez canals can be seen on our web page which is updated on a monthly basis   Shipping Demand Trends — Oceanic Investment Management (oceanicim.com)