Trade Turmoil: Houthi Attacks In Red Sea Ignite Rerouting Crisis, Drive Surging Shipping Stocks

The escalating disruptions in the Red Sea, caused by attacks led by Yemen-based Houthi rebels targeting ships, have triggered a significant shift in global trade patterns.

Industry data from Flexport Inc., unveiled in a Bloomberg story on Thursday, reveals a startling development: around half of the container-ship fleet that typically passes through the Red Sea and Suez Canal is rerouting to avoid the area.

This shift, involving approximately 300 vessels capable of carrying 4.3 million containers, represents about 18% of global shipping capacity.

The Rerouting Challenge

Image: MapChart

Rerouting around Africa adds approximately 25% more travel time compared to the usual Suez Canal route, connecting Asia and Europe.

This not only increases operational costs for shippers but is also likely to inflate consumer prices for a wide range of products, including everyday items like clothing, food, and oil.

The Houthi, originating from Yemen, have justified their attacks as a stance against Israel, which is currently involved in a war against Hamas.

However, their targets are not limited to vessels with direct Israeli connections, posing a broader threat to international trade. In response, a U.S.-led task force is stepping up efforts to enhance security along this crucial maritime corridor.

The data from Flexport aligns with findings from Kuehne & Nagel International AG KHNGY, another freight-forwarding giant. Their data, as of Wednesday, showed 364 vessels, with a capacity of 5 million TEUs, rerouting around Africa – a notable increase from 314 vessels recorded on Dec. 22. Over the past month alone, shares of Kuehne & Nagel International AG have risen by 20%, reaching the highest level since October 2021.

Clarksons Research highlights the impact of these diversions: a 40% decrease in Gulf of Aden arrivals and a 45% reduction in the Suez Canal southbound transits between Dec. 22 and 26.

Market Reactions: Maritime Shipping Stocks Rocket

Shares of the Danish business conglomerate A.P. Moeller-Maersk A/S AMKBY, the world’s second-biggest container line, have risen by nearly 20% over the past two weeks.

Another industry giant, the German Hapag-Lloyd Aktien HLAGF saw a remarkable 40% boost in its share price during the same time frame.

The Honolulu-based Matson Inc. MATX witnessed an 11% rally, similar to the one seen by Global Ship Lease Inc. New GSL.

The SonicShares Global Shipping ETF BOAT, which tracks stocks from companies operating in the global maritime shipping industry, has soared by 10%.

Chart Courtesy of TradingView: Houthi Attacks Fueled Shipping Companies’ Stocks