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Red Sea situation gives carriers a bottom-line boost

Container shipping has experienced a significant turnaround in financial performance, with a shift from a US$700 million net loss in the last quarter of 2023 to a net income of US$5.4 billion in the initial months of the current year. This recovery is attributed to the diversions around the Red Sea, which have notably increased the major shipping lines' net income by over US$6 billion. Despite this, the profits are still lower compared to the same period last year, when the industry recorded US$13.7 billion in profits.

John McCown from Blue Alpha Capital highlights that this profit resurgence follows a period of six consecutive quarters of declining profits, succeeding seven quarters of record profits. The recent profit increase is primarily driven by pricing adjustments resulting from the Red Sea situation. The geopolitical tensions have led most container ships on the Asia to Europe trade lane to opt for a longer route around Africa, absorbing approximately 8% of global container shipping capacity.

Maritime Strategy International (MSI) reports that this capacity absorption has contributed to a swift return to profitability for shipping lines, with spot rates from Asia to Europe showing significant fluctuations. According to MSI's Horizon report, after a period of decline, spot freight rates experienced a substantial increase in the first half of May. This was partly due to major carriers implementing General Rate Increases (GRIs) on May 1, supported by robust demand-supply dynamics including increased demand, port congestion, and the continued diversions around the Cape of Good Hope.

The report also notes a significant rise in transshipment volumes in Spain and Morocco, particularly in ports such as Barcelona, Valencia, and the Port of Tanger. This increase is linked to the Red Sea diversions, causing vessels to reroute around the Cape and utilize feeder vessels for Eastern Mediterranean destinations. The deployment on intra-Mediterranean and North Europe-Mediterranean routes has seen an increase, indicating a shift in shipping patterns due to the ongoing crisis.

Looking ahead, MSI anticipates that the combined effects of severe port congestion, increased seasonal demand, and the continuation of Cape of Good Hope diversions could further escalate Asia-Europe spot freight rates. The ongoing Red Sea crisis, with no resolution in sight, and the approaching peak season, suggest a continued upward trajectory for shipping rates.


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