THE Middle East containership market may not be big compared to the transpacific, Asia-Europe or intra-Asia, but the abrupt loss of this trade for liners will have outsized repercussions.
The fallout for global container trades of the effective closure of the Strait of Hormuz to boxship transits will be extremely consequential, lengthy and globe-spanning, according to speakers at the TPM26 conference in Long Beach, California on Monday.
“What’s transpiring is really the worst end of the spectrum in terms of the potential risk outlook that we thought may happen,” said Jeremy Nixon, chief executive of liner operator Ocean Network Express.
“About 10% of the global fleet is caught up in this. This is a major development. This is another black swan event. We continue to go through these in our industry, and this one is an evolving story. It’s a breaking live news situation, changing by the hour.”
According to Nixon, “The immediate implications are that insurance has come off so you can’t put any ships through, fuel prices are rapidly escalating, and most of the carriers, including ONE, have stopped all bookings to the Middle East.
“This is not an insignificant trade. It’s not as big as the transpacific but it’s still pretty significant. All of that cargo is going to start backing up into key locations in Europe and Asia.
“All the ships that have cargo for the Middle East that would need to go through the Strait of Hormuz are going to have to turn around and take that cargo to places such as Colombo, Fujairah and other locations,” Nixon explained.
ONE informed customers on Monday (March 2) of a temporary suspension of bookings to and from the Middle East Gulf. This followed a similar announcement from the world’s largest box carrier Mediterranean Shipping Company that it was no longer taking Middle East bookings.
Following initial strikes by the US and Israel on Iran, carriers responded quickly with a series of service suspensions and measures to withdraw capacity from the region, while diverting ships unable to leave the Gulf to take shelter at ports and anchorages.
In the last 24 hours carriers have continued to inform customers of service updates in a rapidly fast moving environment.
Maersk has announced further service and cargo suspensions, including halting bookings between the Indian subcontinent and the “Upper Gulf” markets.
Similarly Hapag-Lloyd has notified of a booking stop with immediate effect on cargoes from Africa to the Upper Gulf region. This is in addition to dedicated loops to the region, namely MIAX eastbound and EA2 northbound, which utilises Jebel Ali.
CMA CGM has also cancelled all bookings to affected countries in the regions for hazardous and dangerous cargoes as well as reefer consignments.
Meanwhile, Evergreen stated on Monday that all its services “remain in normal operation”, but it will “continue to assess the situation in real time and make adjustments as necessary”.
But these booking and service suspensions are only the first visible signs of a much deeper operational strain now unfolding across global container networks.
According to Johan Sigsgaard, executive vice-president of Maersk, “In the short run, the containers that are already on the water, the bookings that have already been made that are on the water – just dealing with that is going to be an issue.
“Because today, in the global hubs, we don’t have the capacity for the kind of volume we’re talking about here. This is a massive volume. This is going to have an impact.”
“When these problems occur, what we have seen from the past couple of years is that it’s the same equipment that’s used worldwide, the same ships largely being used worldwide. Many of the hubs today touch almost all trades, particularly the big hubs,” said Sigsgaard.
“This means, depending on how long this lasts, the effects will eventually be felt in more trades.”
According to Trine Nielsen, vice-president of ocean at Flexport, “Every ship that fails on its normal schedule has a ripple effect.
“When it comes to equipment issues, if you look back on what happened when carriers stopped using the Suez, the ripple effects came months later. It was when containers were needed back in Asia.
“The ripple effects of this are not going to come tomorrow,” said Nielsen. “They might come three, four, eight weeks later. And it can go across all trades, because carriers typically want to have equipment on the trades that are most profitable. This is a Middle East situation, but the ripple effects could also translate into the transpacific trade.”
Nixon said, “Initially, it's obviously a Middle East story. But there's exports coming from many different locations, primarily from Asia. I would expect that some of the hubs now will start to lose some of their fluidity: Port Klang, Singapore, some of the other major ports in Asia as well.
“There was an immediate cessation on bookings. So, there will be cargo that would be in-gated right now, in those terminals, which is not going to get lifted on a ship. That’s going to give port operators headaches in terms of their stack utilisation and the fluidity of the terminals,” said Nixon.
According to Turloch Mooney, global head of port analytics for S&P Global Market Intelligence, “From the ports’ perspective, it is completely catastrophic. I don’t think catastrophic is too big a word to describe it.
“We’re already seeing a huge amount of disruption and congestion at the South Asian ports — Mundra, Mumbai, Colombo — because a lot of the cargo destined for Middle East ports like Jebel Ali, which is completely non-operational, have been diverted to those routes for cargo to be delivered over land.”
At this point, Mooney explained, containerships are stuck on both sides on the Strait of Hormuz due to insurance and safety issues. “Once a safe window opens and those vessels start to move, they're all going to be reaching their destinations practically simultaneously, which will clearly overwhelm port operations.
“Even if the conflict were to end tomorrow, it would probably be at least six months before we're back to normality, given what's happened already,” Mooney warned.
Another major consequence of the Middle East war: is it has abruptly changed carrier plans to gradually return to the Red Sea. The Houthis have not resumed attacks, but the presumed risk factor has led to a sudden reversal in transit plans.
“Any hope of Suez transits resuming anytime soon are, of course, completely shattered,” said Mooney.
According to Emily Stausboll, senior shipping analyst at Xeneta, “You have the Maersk services going back away from the Red Sea to the Cape of Good Hope. That obviously hits their reliability on Asia-Europe services.”
Ships diverted from the Suez, as well as the larger number tied up in the Middle East trade, “are not going to be there where the carriers need them to be,” said Stausboll.
“The carriers are going to say, okay, where do I have other ships? They’re going to have to pull tonnage to fill in the blanks, and that’s where you’ll see knock-on effects in the rest of the world. It’s hard to tell exactly which trades will be most impacted by that, but they will be impacted.”
