Maersk reroutes Red Sea ships ‘for foreseeable future’ as container rates shoot higher

Maersk reroutes Red Sea ships ‘for foreseeable future’ as container rates shoot higher

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Shipping giant AP Møller-Maersk will reroute ships from the Red Sea around Africa “for the foreseeable future”, after Houthi militants in Yemen escalated their attacks in the region.The move by Maersk came as container shipping rates shot higher this week and economists warned that the global economy would come under fresh inflationary pressure if the disruption continued. “The situation is constantly evolving and remains highly volatile, and all available intelligence at hand confirms that the security risk continues to be at a significantly elevated level,” said Maersk in a statement. “We have therefore decided that all Maersk vessels due to transit the Red Sea/Gulf of Aden will be diverted south around the Cape of Good Hope for the foreseeable future.”The world’s largest shippers have been abandoning the Suez Canal route connecting Asia and Europe despite US-led efforts to bolster maritime security in the region, following a swath of attacks by the Iranian-backed militants. The Houthis have launched at least 20 attacks on ships off Yemen’s coast in recent weeks and have vowed to continue targeting vessels in response to Israel’s war in Gaza. Maersk’s announcement illustrates how shippers are now preparing for a prolonged disruption. The longer distances container vessels are sailing around Africa have tightened the availability of ships and led to rates more than doubling since mid-December on the key Shanghai to Rotterdam route, rising to $3,100 per standard 40-foot container from $1,400, according to Xeneta.“This confirms that there are no quick solutions to this crisis,” said Peter Sand, chief analyst at Xeneta, a container market intelligence company. “Maersk and other shipping companies will now be thinking in months and quarters rather than days and weeks.”Economists warned that if the problems persisted it would slow the pace at which global price pressures subside and could delay the timing of expected interest rate cuts by central banks.Investors expect the US Federal Reserve and European Central Bank to start cutting borrowing costs as early as March in response to a rapid cooling of price pressures. But markets have scaled back these bets in the past week after a rise in eurozone inflation and signals that Fed officials want to keep borrowing costs high for longer.Ben May, director of global macro research at consultants Oxford Economics, said that based on IMF research the recent rise in shipping costs could add about 0.6 percentage points to global inflation if it was sustained for the rest of this year.This would slow the speed of disinflation and “could be another reason to believe that market expectations for the extent of policy loosening by the Fed this year have gone too far”, he said.Thomas McGarrity, head of equities at RBC Wealth Management, said: “If the Red Sea disruption persists, the knock-on impact will likely be felt by industries such as clothing retail, with negative implications for margins due to higher freight costs.”Western powers have deployed a number of naval vessels to the region to help provide protection for commercial shipping. But they have so far avoided a more robust response, such as targeting Houthi military facilities in Yemen, for fear of expanding the conflict. Shipping companies are widely seen as beneficiaries from the Red Sea problems as freight rates increase and investors bet that what is bad news for the global economy and retailers could bring better profits for the biggest container groups.Shares in Denmark’s Maersk are up almost 40 per cent since December 12 while those in German rival Hapag-Lloyd have increased two-thirds in the same period.A Maersk container ship on the Suez Canal in December. Shippers are now largely avoiding this route despite US-led efforts to bolster security © Stringer/BloombergOil markets have been less affected by the disruptions, with many companies still willing to traverse the Red Sea route, according to Vortexa, despite facing higher insurance costs. Brent crude has risen only slightly this week from $77 to $78 a barrel. BP said its vessels will avoid the route.A tanker with an $85mn diesel cargo now costs about $5mn for a voyage from the Middle East to Europe, up from $3.2mn before the Houthi attacks began, according to estimates by Braemar.Economists pointed out that global stocks of manufactured goods were relatively high while demand was weak, making shortages less likely, while reducing companies’ ability to pass on higher shipping costs to consumers. Simon MacAdam, senior global economist at consultants Capital Economics, said the bigger risk remained an expansion of the conflict that could hit energy supplies.

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