Despite a recent ballistic missile attack on the U.S.-owned Gibraltar Eagle container ship in the Gulf of Aden, shipping stocks are displaying resilience. The vessel, belonging to Eagle Bulk Shipping Inc., was struck by an anti-ship missile fired from Houthi-controlled Yemen. The incident prompted the U.S. Department of Transportation to issue a warning for U.S.-flagged and U.S.-owned commercial vessels to avoid the area until further notice.
Fortunately, the Gibraltar Eagle sustained no injuries or significant damage and continues its journey unimpeded. Loaded with a cargo of steel products, the ship’s operator, Eagle Bulk Shipping Inc., is confident that the incident will have limited impact on its first-quarter results. However, the attack may lead to potential challenges for vessels traveling through the Red Sea and Gulf of Aden on their way to the Suez Canal, potentially rerouting them around the Cape of Good Hope for an extended period. Furthermore, insurance premiums for the industry as a whole may increase in response to attacks in this region.
Despite these potential repercussions, shipping stocks remain largely unaffected. On Tuesday, shares of Eagle Bulk Shipping saw a 1.2% increase, outperforming the broader SPX decline of 0.3%. Other shipping companies also experienced positive movement, with Golden Ocean Group Ltd. up 3.2%, Star Bulk Carriers Corp. up 1.5%, Safe Bulkers Inc. up 0.3%, and Genco Shipping & Trading Ltd. up 1.1%.
This event underscores the resilience and adaptability of the shipping industry in the face of adversity. By diversifying routes and maintaining robust insurance coverage, shipping companies continue to navigate challenging circumstances while remaining steadfast and focused on their operations.
Red Sea and Panama Canal Disruptions Pose Challenges for Supply Chains
According to data from Drewry Shipping Consultants Ltd, as of December 2020, the total global dry bulk vessel operating fleet was 12,312 vessels, with a cargo capacity of 912.2 million deadweight tons. This situation has sparked concerns about potential disruptions in global supply chains.
Recent developments in the Red Sea have worsened the situation. Analyst Benjamin J. Nolan from Stifel highlighted the growing challenges faced by container and LNG ships. In response to attacks or attempted attacks on tankers, Torm, a prominent player in the product tanker industry, announced that they would be taking longer routes around Africa instead of transiting through the Red Sea or Suez Canal.
This decision to circumnavigate Africa could decrease effective container shipping supply by 12%. Consequently, container rates have soared from $1,381 per 40-foot container in early December to the current rate of $3,075. The strengthening tanker market has also experienced a surge, although the markets for LPG and LNG have softened due to the increased supply and reentry of ships previously used for floating storage.
This diversion via the Cape of Good Hope will undeniably drive up commodity costs. However, so far, there have been no significant impacts. The burden of inefficient freight costs will ultimately fall on consumers, but given that ocean freight represents only a small fraction of the total cost of goods, it is unlikely to significantly affect prices.