Maersk Avoiding Red Sea for Foreseeable Future

Shipping giant Maersk (Copenhangen Denmark) said it is rerouting around the Cape of Good Hope for the foreseeable future to avoid conflict in the Red Sea, where Iranian-backed forces are targeting the maritime industry.

Maersk said Monday that the complexity of the situation in the Red Sea is evolving and expanding, with attacks moving further and further offshore.

"The knock-on effects of the situation have included bottlenecks and vessel bunching, as well as delays and equipment and capacity shortages," the company said. "We estimate an industry-wide capacity loss of 15-20% on the Far East to North Europe and Mediterranean market during Q2."

Attacks by the Iranian-backed Houthi rebel group erupted shortly after the war between Hamas and Israel broke out late last year. On Friday, the United Kingdom Maritime Trade Operations center, part of the British military, said a merchant vessel was hit by a missile fired from Yemen.

"The vessel and crew are reported safe and the vessel is proceeding to its next port of call. Authorities are investigating," the British military said. "Vessels are advised to transit with caution and report any suspicious activity to UKMTO."

While safe, the vessel did sustain damage during the attack and was headed to its next port call.

The onset of the attacks triggered something of a geopolitical risk premium for the price of oil earlier this year. While the price for Brent crude oil, the global benchmark, moved toward $90 per barrel in March, Ronan Graham, an energy security analyst for the International Energy Agency (IEA), warned that "supply disruptions can still cause significant economic harm and have a substantial negative impact on people's lives."

So far, however, there have been no direct attacks on oil and gas supplies in the Middle East as a result of the regional conflicts. Brent was trading at about $83 per barrel on Monday, rallying from last week as progress on a truce between Hamas and Israel stalls.

Despite the lack of direct market impacts, however, Maersk said it was using 40% more fuel per journey because of the situation in the Red Sea and charter rates as three times higher than normal.

"We are doing what we can to boost reliability, including sailing faster and adding capacity," Maersk said. The company added that it's leased 125,000 additional containers to address any lingering bottlenecks.

"Demand is trending towards the higher end of our market growth guidance and conditions in the Red Sea remain entrenched," Vincent Clerc, the company's chief executive officer, said. "This not only supported a recovery in the first quarter compared to the previous quarter, but also provides an improved outlook for the coming quarters, as we now expect these conditions to stay with us for most of the year."

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