Suez blockage propels shipping stocks on rising freight costs

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Shares in shipping operators have jumped on the prospect of higher freight rates as a likely prolonged blockage of the Suez Canal forced industry executives to consider lengthy alternative routes for their vessels.

China’s Cosco Shipping and South Korea’s Hyundai Merchant Marine led the stock price surge in Asia on Friday with almost 10 per cent increases after salvage experts indicated it could take weeks to dislodge the 400-metre Ever Given container ship from the banks of the Suez Canal.

Shipping companies were contemplating whether to reroute cargo around Africa, which would add at least seven days and significant costs to journeys. James Wroe, head of liner operations at Maersk Asia Pacific, wrote on social media that the decision was a “roll of the dice”.

Hyundai Merchant Marine has already diverted the Hyundai Prestige, which is sailing from Southampton to Laem Chabang in Thailand, to bypass the Suez Canal and travel around South Africa’s Cape of Good Hope. Shipbrokers in Singapore and Tokyo said similar rerouting decisions were “imminent” on a number of oil tankers and other vessels.

Shipping companies estimated that almost 200 vessels were stranded on either side of the Suez, the chokepoint through which about 12 per cent of global trade flows. The route is critical for oil, gas and high-demand food commodities such as coffee.

The Suez Canal in numbers

1,550

The average number of ships passing through the 120-mile long Suez Canal each month — more than 50 ships a day

30%

Bulk carriers account for almost 30% of traffic, container ships 25% and tankers for 15% of transits

18,597

The number of ships that passed through the Suez Canal in 2020 (data provided by Refinitiv)

Dutch and Japanese salvage specialists have produced a variety of theories for how best to free the Ever Given, a formidable technical challenge that has been complicated by poor weather. Nippon Salvage, which is part of the rescue efforts, declined to comment.

An official at Shoei Kisen Kaisha, the Japanese owner of the Ever Given, said it was focusing on dislodging the container ship but added that resolving the situation remained “extremely difficult”. 

“The market is betting that the issue might go on for a while,” said Kim Youngho, an analyst at Samsung Securities. “If you detour to the Cape of Good Hope, it will probably take at least one more week to reach the Netherlands from Shanghai . . . if you have to detour it should raise current freight rates further.”

Ocean Network Express, a joint venture between Japan’s three largest shipping companies, said that while nothing had been decided regarding rerouting, the situation was being closely monitored. 

Westbound vessels leaving — or scheduled to leave — ports in Japan, Korea, China and elsewhere in north-east Asia would do so as normal, ONE added. However, the situation would be assessed when they reached Singapore.

Analysts said there was a specific point in the Indian Ocean at which shipping companies would have to decide whether to take the Cape of Good Hope route or head for the Suez, betting that the blockage would be cleared by the time they arrived.

Mitsui OSK Lines, which has four tankers carrying chemical and steel materials stuck at Suez, said it was not considering rerouting ships in the hope the situation could be resolved within two weeks.

Ong Ye Kung, Singapore’s transport minister, wrote on Facebook that “supplies to the region may be temporarily disrupted”.

About a third of global seaborne trade travels via the city-state and the Strait of Malacca, a critical shipping lane between the Indian and Pacific oceans. A prolonged blockage of the Suez would mean Singapore’s port “may see schedule disruptions when shipping lines reroute their journeys”, Ong said.

Reporting by Leo Lewis and Kana Inagaki in Tokyo, Song Jung-a in Seoul, Hudson Lockett in Hong Kong and Stefania Palma in Singapore

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