Supply Lines: Red Sea Update

According to the Bloomberg, Red Sea shipping diversions may last a few more months, and some people think they could go on even longer.

That’s among the takeaways from the CEO of Hapag-Lloyd, the world’s No. 5 container line, in an interview Thursday on Bloomberg TV. Rolf Habben Jansen was speaking as the Hamburg, Germany-based company announced 2023 earnings that showed a steep drop in revenue and profits from a year earlier.

Houthi attacks on ships in the Red Sea have disrupted supply chains since mid-December 2023, forcing carriers to change routes and redo schedules — adjustments that have helped absorb excess capacity.

As a result, they’re burning more fuel and taking longer to deliver, with some needing to purchase more containers given the extended routes. The added costs are getting past along to customers.

The longer routes around southern Africa initially boosted spot container rates but those are coming down, Jansen said. “The services are stabilizing, which also means that the market is getting calmer.”

He indicated, though, that there’s no telling when the Red Sea will be safe enough to transit again.

“We hope that we’re going to be able to go back through in a couple of months,” Jansen said. “But I know there are also people that think that it will last quite a while longer.”

In the medium term, excess capacity may return to weigh on freight rates. Hapag-Lloyd expects the market to remain difficult for carriers given the large number of ship deliveries this year, Jansen said in the company’s 2023 annual report.

Sharing that view was Zim Integrated Shipping CEO Eli Glickman, who spoke on a conference call on Wednesday. “Once the Red Sea crisis is resolved, we will likely revert to the supply-demand scenario that began to play out in ‘23, setting up a more challenging third and fourth quarter of 2024 for the industry, including us,” he said.

It’s not just the shipping companies facing a tough environment. World Trade Organization Director-General Ngozi Okonjo-Iweala told Bloomberg in an interview that “the risks are all on the downside.”

But corporate supply chains have gotten more resilient and flexible. Here’s a rundown of comments that a few big shippers and a major port operator have offered this week:

Samsonite CFO Reza Taleghani: “So if you think about things you read about in the news, shipping delays, Red Sea, et cetera, we are just fine. We have inventory exactly where we need it to be. All of our facilities, even if there is a week or two delays, not that big of a deal.”

Adidas CEO Bjorn Gulden: “We have a little bit of headwind in freight in the first half because of the Red Sea situation, and as you know, if the freight companies have a chance to do something they increase prices. That should normalize and then the rest of everything that has to do with margin is going in the right direction.”

Williams-Sonoma CEO Laura Alber: “When a problem comes along, they’re real. The Red Sea disruption is pretty terrible. However, it is not costing us any more money. So far it is costing us about 10 days of delivery, give or take. And as I mentioned last time, we padded the deliveries to our customers once we heard about it, so we didn't disappoint them.”

DP World Group Chairman Sultan Ahmed bin Sulayem: “Despite the uncertain start to 2024 with the ongoing Red Sea crisis, our portfolio has continued to demonstrate resilience. The outlook remains uncertain due to the challenging geopolitical and economic environment.”

 

Ships continue to transit Red Sea

With the passage of time it is becoming evident that Houthis are targeting vessels with Israeli links or cargoes only. That is the reason ship owners are still sending vessels through the region.

The western media is portraying that Houthis attack any ship passing through the Southern Red Sea. Therefore, the ship operators are rerouting vessels via the Cape of Good Hope.

According to the most recent poll conducted by Seatrade Maritime News when the respondents were asked, are some ship owners and charterers right in risking continuing to transit the Red Sea given the threat of attack?

The response to the question was very evenly split with 53% voting ‘yes’ they were right to continue transiting the Red Sea, while 47% said ‘no’ they should not transit the Red Sea.

The results in many ways mirror the industry’s reaction which has varied significantly by sector. Around two-thirds of all container ships have diverted via the Cape of Good Hope, with CMA CGM joining other top lines in this decision over the weekend. Similarly, LNG carrier transits of the Suez Canal 73% in January 2024 compared to November 2023, according to figures published by Kpler.

However, when compared tanker and dry bulk ship transits of the Suez Canal between January 2024 and November 2023 these reduced by just 23% and 27% respectively over the same period.

There would appear no resolution to the attacks on commercial shipping in the near term as the conflict in Gaza continues and Houthi rebels vowing to continue to strike at vessels with either Israeli links or cargoes.

This leaves it down to individual ship owners, operators, and charterers to weigh the risk to vessels, crew and cargoes of continuing to transit the Red Sea

 

Houthis claim to have hit US container ship

The Houthi movement in Yemen says it has struck a US merchant ship in the Red Sea in a fresh attack targeting commercial shipping, reports Saudi Gazette. It named the ship as the KOI, which it said was US-operated.

Maritime security firm Ambrey said a vessel operating south of Yemen's port of Aden had reported an explosion on board but it did not name the ship.

Meanwhile, the US has launched new air strikes in Yemen, targeting 10 drones reportedly being set up to launch.

According to Reuters, KOI is a Liberian-flagged container ship operated by UK-based Oceonix Services. The same company's fleet includes the oil tanker Marlin Luanda, which was damaged by a missile on Saturday.

The Houthis regard all Israeli, US and British ships as legitimate targets following Israel's war on Hamas in Gaza, and US and British targeting of Houthi missile positions in what the two countries say are efforts to protect commerce.

Houthi military spokesperson Yahya Sarea said on Wednesday that the movement's armed forces had targeted an American merchant ship named KOI with "several appropriate naval missiles".

The ship, he said, had been heading to "the ports of occupied Palestine", a phrase which is sometimes used to mean Israel.

Yemen, he added, would not hesitate to retaliate against British-American escalation.

US Central Command said the 10 drones being prepared for launch in Yemen had posed a threat to merchant vessels and US warships in the region.

All 10 were destroyed along with a Houthi drone ground control station, it said.

The US added that one of its warships had shot down three Iranian drones and a Houthi anti-ship ballistic missile in the Gulf of Aden.

Axis of resistance as defined by western media

ran's role as leader of Axis of Resistance - which includes the Houthis, Lebanon's Hezbollah, Hamas and militias in Iraq and Syria - had to be balanced against avoiding getting sucked into a regional war over Gaza.

Tehran's messaging to - and about - the Houthis requires a measure of deniability about the extent of its control over them - but also an ability to claim some credit for their anti-Israel actions.

Strikes by United States and Britain on Houthi targets have failed to deter the group which controls a large chunk of Yemen including the capital Sanaa and much of the country's Red Sea coast by the Bab al-Mandab strait.

The Houthis, who first emerged in the 1980s as an armed group in opposition to Saudi Arabia in Yemen, are said to be armed, funded and trained by Iran and are part of its anti-West, anti-Israel Axis of Resistance.

As reported by Reuters, a senior US official informed that Washington had asked China to use its leverage with Iran to persuade it to restrain the Houthis, including in conversations Secretary of State Antony Blinken and National Security Advisor Jake Sullivan had this month with senior Chinese Communist Party official Liu Jianchao.

A senior Iranian official said while Chinese officials discussed their concerns thoroughly in the meetings, they never mentioned any requests from Washington.

On January 14, China's foreign minister Wang Yi called for an end to attacks on civilian ships in the Red Sea - without naming the Houthis or mentioning Iran - and the maintenance of supply chains and the international trade order.

Victor Gao, chair professor at China's Soochow University, said China, as the world's biggest trading nation, was disproportionately affected by the shipping disruption and restoring stability in the Red Sea was a priority.

Gao, a former Chinese diplomat and an adviser to oil giant Saudi Aramco, said Beijing would view Israel's treatment of the Palestinians as the root cause of the Red Sea crisis and would not want to publicly ascribe blame to the Houthis.

A diplomat familiar with the matter said China had been talking to Iran about the issue but it was unclear how seriously Tehran was taking Beijing's advice.

Two officials in the Yemeni government, an enemy of the Houthis, said they were aware that several countries, including China, had sought to influence Iran to rein the Houthis in.

Analysts Gregory Brew of Eurasia Group and Ali Vaez of the International Crisis Group said China had potential leverage over Iran because of its oil purchases and because Iran was hoping to attract more Chinese direct investment in future.

Both said China had so far been reluctant to use its leverage, for several reasons.

"China prefers to free-ride on the US safeguarding freedom of navigation in the Red Sea by bloodying the Houthis' nose," said Vaez, adding that Beijing was also aware that Iran did not have total control over its Yemeni allies.

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Houthi spokesman Mohammed Abdulsalam said on Thursday that Iran to date had not conveyed any message from China about scaling back attacks.

"They will not inform us of such a request, especially since Iran's stated position is to support Yemen. It condemned the American-British strikes on Yemen, and considered Yemen's position honourable and responsible," he said.

The stakes are high for Iran as China is one of the few powers capable of providing the billions of dollars of investment Tehran needs to maintain the capacity of its oil sector and keep its economy afloat.

China's influence was evident in 2023 when it facilitated an agreement between Iran and regional rival Saudi Arabia to end years of hostilities.

There are robust economic ties between China and Iran, Beijing's influence on Tehran's geopolitical decisions was not absolute.

Iranian state media says Chinese firms have only invested US$185 million since then. State media also said last year that Iranian non-oil exports to China fell 68% in the first five months of 2023 while Iran's imports from China rose 40%.

By contrast, Chinese companies committed last year to invest billions in Saudi Arabia after the countries signed a comprehensive strategic partnership in December 2022.

While China could not be ignored, Tehran had other priorities to consider and its decisions were shaped by a complex interplay of factors.

Regional alliances and priorities as well as ideological considerations contribute significantly to Tehran's decisions.

Iran has to adopt a nuanced strategy when it came to the Gaza war, as well as the Houthi attacks, and that Tehran would not abandon its allies.

 

 

US and UK nationals ordered to leave Yemen

Yemen's Houthi authorities have ordered the US and British staff of the United Nations and Sanaa-based humanitarian organizations to leave the country within a month, a document and a Houthi official said on Wednesday.

The decision follows strikes by the United States and Britain, with support from other nations, against military targets of the group, which has been launching attacks on commercial ships in the Red Sea that is says are linked to Israel.

The US government last week also returned the Houthis to a list of terrorist groups as Washington tries to stem attacks on international shipping in the Red Sea. The Houthis have said their attacks are in solidarity with the Palestinians as Israel bombards Gaza.

"The ministry ... would like to stress that you must inform officials and workers with US and British citizenships to prepare to leave the country within 30 days," said a letter sent by the Houthi foreign ministry to the UN's acting humanitarian coordinator in Yemen, Peter Hawkins.

The letter also ordered foreign organisations to not hire American and British citizens for Yemen's operations.

Houthi top negotiator Mohammed Abdulsalam confirmed the letter's authenticity to Reuters.

The US embassy said in a statement it was aware of reports about the letter but "cannot speak on behalf of the UN or humanitarian organizations in Yemen as to what they may have received from Houthi 'authorities'".

The British embassy said staff had not yet been told to leave and the mission was in close contact with the UN on the issue.

"The UN provide vital assistance to the Yemeni people ... via the very sea routes that the Houthis are jeopardizing," the British mission in Yemen said in a statement. "Nothing should be done that hinders their ability to deliver," it added.

The Houthi movement controls much of Yemen after nearly a decade of war against a US-backed coalition. The war has shifted to a no-war, no-peace stalemate as the fighting has largely stopped, but both parties have failed to renew formally a UN-brokered ceasefire.

US and British warplanes, ships and submarines have launched dozens of air strikes across Yemen in retaliation for Houthi attacks as container vessels have been forced to divert from the Red Sea, the fastest freight route from Asia to Europe.

US and British forces on Tuesday targeted a Houthi underground storage site as well as missile and surveillance capabilities, the Pentagon said.

 

 

US-led attacks on Yemen an exercise in futility

The United States and British operations against Houthi militants threatening ships in the Red Sea are making matters worse, China’s envoy to the European Union warned.

“They can only escalate the tension and it’ll not guarantee or maintain the safe passage of the commercial vessels,” Fu Cong said in an interview with Bloomberg. “It’ll even make the passage more dangerous.”

US Central Command forces conducted military strikes Wednesday against two Houthi anti-ship missiles, the latest in a series of efforts to diminish the group’s ability disrupt trade.

Hundreds of vessel operators that cross the Red Sea to access the Suez Canal as they move cargo between Asia, the US and Europe are avoiding the shortcut and taking the longer southern route around Africa.

It’s a massive diversion that’s delaying delivery of billions of dollars in goods, adding to costs and carbon emissions, and fueling fears of broader economic fallout, according to today’s Bloomberg Big Take. 

As the US and UK naval operations continue, the EU is moving ahead with its own plans to established a naval operation in the Red Sea to protect commercial shipping, but it’s still working out the details.

Fu, who is China’s top envoy in Brussels, said the Houthi attacks are a spillover from the Gaza crisis, where Israel has conducted its own military operations against Hamas militants who attacked, kidnapped and killed Israeli citizens on October 07, 2023.

Fu urged the international community, and the US in particular, to exercise more leverage or pressure on the Israeli authorities to stop the indiscriminate bombing of Gaza and in particular the civilians.

“Common sense will tell us that by escalating the tension, you will only aggravate the situation and you cannot resolve the problem with the approach that the US and UK are taking,” Fu said.

Courtesy: Bloomberg

US allies reluctant to join Red Sea task force

The response to the mantra of US President Joe Biden regarding formation of response force to Yemen's Houthi attacks on ships passing through Red Sea is disappointing. It seems many allies don't want to be associated with it, publicly, or at all.

Two of America's European allies who were listed as contributors to Operation Prosperity Guardian - Italy and Spain - issued statements appearing to distance themselves from the maritime force.

The Pentagon says the force is a defensive coalition of more than 20 nations to ensure billions of dollars' worth of commerce can flow freely through a vital shipping chokepoint in Red Sea waters off Yemen.

Nearly half of those countries have so far not come forward to acknowledge their contributions or allowed the US to do so. Those contributions can range from dispatching warships to merely sending a staff officer.

The reluctance of some US allies to link themselves to the effort partly reflects the fissures created by the conflict in Gaza, which has seen Biden maintain firm support for Israel even as international criticism rises over its offensive, which Gaza's health ministry says has killed more than 21,000 Palestinians.

"European governments are very worried that part of their potential electorate will turn against them," said David Hernandez, a professor of international relations at the Complutense University of Madrid, noting that the European public is increasingly critical of Israel and wary of being drawn into a conflict.

Reportedly, Houthis have been alleged for attacking or seizing a dozen ships with missiles and drones since November 19.

The navies of the United States, Britain and France have each shot down Houthi-launched drones or missiles.

The US believes escalating Houthi attacks call for an international response separate from the conflict raging in Gaza.

However, this kind of propaganda is being highlighted in US sponsored/ supported media. It may be recalled that Hothis has announced to target Israeli ships of vessels carrying to and from Israel.

Denmark's giant container firm Maersk said on Saturday it would resume shipping operations in the Red Sea and the Gulf of Aden. But Germany's Hapag Lloyd said on Wednesday it still believes the Red Sea is too dangerous and will continue to send ships around the Cape of Good Hope.

While the US says 20 countries have signed up for its maritime task force, it has announced the names of only 12.

Although Britain, Greece and others have publicly embraced the US operation, several mentioned in the US announcement were quick to say they are not directly involved.

Italy's defense ministry said that it would send a ship to the Red Sea following requests from Italian ship owners and not as part of the US operation.

France said it supports efforts to secure freedom of navigation in the Red Sea but that its ships would remain under French command.

Spain has said it will not join Operation Prosperity Guardian and opposes using an existing EU anti-piracy mission, Atalanta, to protect Red Sea shipping.

But on Wednesday, Prime Minister Pedro Sanchez said he was willing to consider the creation of a different mission to tackle the problem.

Saudi Arabia and United Arab Emirates earlier proclaimed no interest in the venture.

There is also the risk that participating countries become subject to Houthi retaliation. The person familiar with the US administration's thinking says that it is this risk - rather disagreements over Gaza - driving some countries to steer clear of the effort.

That appears to be the case for India, which is unlikely to join the US operation, according to a senior Indian military official. An Indian government official said the government worries that aligning itself with the US could make it more of a target.

In reality, many European and Gulf countries already participate in one of several US-led military groups in the Middle East, including the 39-nation Combined Maritime Forces (CMF).

The EU's Atalanta operation already cooperates in a reciprocal relationship with CMF, according to a spokesperson for the group.

That means that some countries not formally joining the Red Sea maritime task force could still coordinate patrols with the US Navy.

Vessels still heading into Red Sea

According to Seatrade Maritime News, three container ships, one each from MSC, Maersk and CMA CGM, were identified on VesselsValue AIS heading south in the Suez Canal towards the Red Sea, despite the carrier’s saying they had re-routed vessels around the African Cape.

Houthi Group missile and drone attacks on commercial vessels have seen many vessels already diverted, but some ships continue to use the critical Red Sea waterway, which has at its northern extremity the southern entrance to the Suez Canal.

A number of other container ships from Cosco, Wan Hai, MSC, Maersk, and CMA CGM were identified either having already transited the Bab al-Mandeb Strait or heading for the mouth of the Red Sea, which leads into the Gulf of Aden and into the Indian Ocean.

In total in the Red Sea region AIS identifies around 80-90 container vessels having already transited, or about to transit the Red Sea in the near future.

Most of the top ten container carriers have made statements saying that their vessels would avoid the Red Sea/Suez waterways until the security situation was alleviated.

Houthi Group missile and drone attacks on commercial vessels have seen many vessels already diverted, but some ships continue to use the critical Red Sea waterway, which has at its northern extremity the southern entrance to the Suez Canal.

A Maersk spokesman pointed to its statement, when asked about the prudence of sailing via Suez. The statement said, “Having monitored developments closely and retrieved all available intelligence, Maersk has decided that all vessels previously paused and due to sail through the region will now be re-routed around Africa via the Cape of Good Hope for safety reasons.”

Maersk also pointed out that some of its vessels operate under the Maersk Line Limited banner which operates for the US Government and is not part of Maersk Line’s overall offering.

Other carriers contacted by Seatrade Maritime News, including CMA CGM and MSC did not respond.

Meanwhile, the international maritime task force of around 10 countries called Operation Prosperity Guardian, which includes naval forces from Italy, Spain, the UK and the US among others was today joined by Greece which has sent a frigate to bolster the naval coalition.

Greek Defence Minister Nikos Dendias said in a statement today: "The frigate will participate in the multinational operation 'Prosperity Guardian', for the protection of merchant ships, the lives of seafarers, and the global economy,".

In addition, the International Union of Marine Insurers also made a statement on the 19 December condemning the attacks on shipping: “Provision of hull and cargo insurance has become increasingly challenging due to the heightened risk. As insurers, we are continuously assessing the situation to ensure adequate coverage and support for our clients, while also advocating for enhanced safety measures.”

 

 

Two ships divert course away from Red Sea

Two commercial ships that diverted their course in the Red Sea and Gulf of Aden were connected to the same maritime group whose vessel was seized by Yemen's Houthis, according to shipping data and British maritime security company Ambrey.

Israel on Sunday said the Houthis had seized a British-owned, Japanese-operated cargo ship in the southern Red Sea, describing the incident as an Iranian act of terrorism with consequences for international maritime security.

The Houthis, an ally of Tehran, confirmed that they had seized a ship in that area but termed it Israeli.

Japan's top government spokesperson on Monday confirmed the capture of the Nippon Yusen-operated ship Galaxy Leader, adding that Japan was appealing to the Houthis while seeking the help of Saudi, Omani and Iranian authorities to work toward the swift release of the vessel and its crew.

Two other ships also listed as commercially managed by Ray Car Carriers, Glovis Star and Hermes Leader, diverted their sailing routes, Ambrey said on Monday.

"The vessel continued to sail back to where it had come from, providing a new AIS destination as Hambantota, Sri Lanka," Ambrey said. "The vessel incurred a minimum four-day business disruption and sailed an additional 1,876 nautical miles."

The Glovis Star drifted for a number of hours in the Red Sea before continuing its journey, AIS ship tracking data showed on Monday.

Isle of Man registered Galaxy Maritime, which is the registered owner of the Galaxy Leader, said in a statement on Monday that the vessel was illegally boarded by military personnel via a helicopter on November 19.

When asked about the other two vessels diverting, a company spokesperson said it was not commenting further on political issues.

Houthi leadership last week said their forces would make further attacks on Israel and they could target Israeli ships in the Red Sea and the Bab al-Mandeb Strait.

US maritime administration MARAD in an advisory said the Galaxy Leader had been hijacked approximately 50 miles west of the Houthi-controlled port of Hodeidah, adding that ships should exercise caution when transiting this area.

"We saw yesterday a new record - for the first time we saw an official announcement of pirates taking over a ship on the high seas, which I think is a major threat to international law and order," Israeli President Isaac Herzog said in comments on Monday, referring to the Galaxy Leader.

 

Saudi Arabia and Yemen exchange prisoners

A total of 19 prisoners from the Coalition Forces, including 16 Saudis and three Sudanese, arrived at King Khalid International Airport in Riyadh on Saturday.

This was under a major prisoner swap deal in which 250 Houthi prisoners also left Abha International Airport for Sanaa, according to Brig. Gen. Turki Al-Maliki, spokesman of the Coalition Forces to Support Legitimacy in Yemen.

This was the second phase of the prisoner swap involving about 800 prisoners of war, initiated by the legitimate government and the Houthis in Yemen.

Brig. Gen Al-Maliki said the prisoner exchange process is of great concern for the political and military command of the Coalition to end the prisoner file and exchange all prisoners and detainees.

He also appreciated the efforts of the International Committee of the Red Cross, as well as the Special Envoy of the United Nations Secretary General to Yemen Hans Grundberg for supporting and making the swap of prisoners and detainees a great success.

The prisoners who landed at Riyadh airport were received by the Chief of the General Staff Gen. Fayyad Al-Ruwaili, Deputy Chief of the General Staff and Commander of the Joint Forces Lt. Gen. Mutlaq Al-Azima, commanders of the armed forces branches, Head of the Military Wing at the Ministry of National Guard Maj. Gen. Muhammad Al-Qahtani, and Military Attaché at the Sudanese embassy in the Kingdom Brig. Gen. Muhammad Abdul Wahed Absher.

The release of these prisoners was the second phase of the three-day prisoner swap between the legitimate Yemeni government and the Houthis that began on Friday.

A flight carrying 120 former detainees took off from the city of Abha on Saturday. The operation will continue on Saturday and Sunday to exchange about 800 prisoners from both sides, with operating 15 flights to six airports in Yemen.

Majid Fadael, spokesman of the government delegation to the prisoners’ negotiations, member of the negotiating delegation and undersecretary at the Ministry of Human Rights, said in a statement on his Twitter account that the second phase of the operation will take place through the airports of Mocha-Sanaa, Abha-Sanaa, and Sanaa-Riyadh, and it will be on board six flights operated by the International Committee of the Red Cross.

The first phase of the exchange of prisoners between the two sides began Friday when the International Committee of the Red Cross (ICRC) planes transported 318 prisoners to and from the Yemeni capital Sanaa and Aden.

Among the 69 prisoners, released by the Houthi group, included former Defense Minister Mahmoud Al-Subaihi and Nasser Mansour Hadi, the brother of Yemeni President Abedrabbo Mansour Hadi.

The Yemeni government released 249 prisoners who were transferred from Aden to Sanaa on board two flights.

Meanwhile the Yemeni Minister of Interior Ibrahim Ali Ahmed Haydan said that this operation, which took place at the initiative of Saudi Arabia and the Coalition to Support Legitimacy, is the largest ever prisoner swap in years.

He emphasized that the prisoner exchange will continue to include all prisoners after the upcoming Eid Al-Fitr. “There has been greater understanding regarding the peace process after the exchange of prisoners,” he pointed out.

It is noteworthy that in the last major exchange that took place in October 2020, more than 1,050 prisoners were released and they returned to their regions or countries, according to a report of the International Committee of the Red Cross.

The release operations are the result of talks concluded on 20 March, 2023, in Bern, Switzerland, where the parties to the conflict in Yemen finalized the plan for the release. The ICRC co-chaired these meetings with the Office of the Special Envoy of the Secretary-General for Yemen