Dry bulk trade unlikely to see serious impact from Red Sea crisis

The dry bulk freight sector is expected to escape the serious impact of fighting around the internationally important shipping lanes of the Red Sea, freight sources have told Agricensus Friday.

The key route has been under siege since the Yemen-based Houthi movement began to target vessels with missiles late last year, causing some significant freight operators and energy majors to review their operations and transit plans for the region.

Over two dozen vessels have been struck by Houthi missile attacks in the Red Sea since the crisis began, leading to American and British strikes against Yemen and a naval force sailing into the Red Sea.  

The ongoing crisis has not had a serious impact on the bulk market and sources do not expect it to, despite serious disruption for containers and oil tankers.

This is partly because fewer dry bulk cargoes rely on the Suez Canal for transit, and so fewer are likely to be forced to reroute.

One source suggested that only 4.5% of the global bulk trade annually passes through the canal.

“The whole rerouting could have around an increase of 1% on bulk tonne mile demand”, they said, “compared with containers of around 8% and 5.5% for tankers”.

Suez Canal Authority data for 2019 showed that the bulk sector represented only 13.2% of all tonnage that passed through the canal and 22.5% of all ships for that whole year.

Furthermore, fewer bulkers that do transit have rerouted.

Daily bulker transits through the Suez Canal fell around 19% from December 24 to January 23, compared to a 55% fall in container transits, according to recent index data from the United Nations Conference on Trade and Development (UNCTAD).

This reflects that a larger proportion of dry bulk shipping may be considered safer as it is not linked to Israeli or American allied countries whom the Houthis have said they will target.  

“Since a large part of the Suez bulker traffic would be Russian cargo ex-Black Sea - which are less affected generally for political reasons - this is another reason why dry bulk is less affected than some of the other segments”, Roar Adland of SSY told Agricensus.

Sources have also suggested that Ukrainian shipping is unlikely to be diverted.

“I have seen a few vessels refusing to go via Red Sea but majority of Greek and Chinese owners that have been trading bsea [Black Sea] and Baltic continue sailing”, one source said.

Ships traveling in the Black Sea are already working in a war zone and may even be under less threat in the Red Sea where Ukrainian ships have so far not been attacked.

Given this, shipowners seem to prefer to push through the Red Sea than to reroute around Africa with much higher costs.  

Freight indications for vessels traveling from Ukrainian ports to China have changed little in recent weeks, and indeed the Agricensus assessments for this route have fallen to $62.60/mt this week from around $70/mt when the crisis began in December.

Certain parts of dry bulk have been more adversely affected.

XClusiv Shipbrokers suggested in their weekly note that 3.9 million tons of grain cargo had chosen alternative routes, out of 7.7 million mt annually that uses the Suez Canal.

Some analysts had also suggested that it could prove to be a problem for US-based cargoes, where some US Gulff exporters had been using the Suez route to avoid delays at the Panama Canal and still access Asian destination markets.

Some sources also said that some French wheat cargoes bound for China had been forced to go around the Cape.

Less direct effects may also come to impact dry bulk.

The recent market monitor by AMIS noted that shipping costs are influenced by the cost of crude oil, and energy prices could increase due to tankers being forced to reroute or through further escalation in the Middle East.