Shipping rates yet to signal a calmer Middle East

Zim Integrated Shipping Services

22/08/2024 11:30

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Yawen Chen
       LONDON, Aug 22 (Reuters Breakingviews) - Investors are
once again hoping for a calmer Middle East. U.S. Secretary of
State Antony Blinken is pushing hard for an Israel-Hamas
ceasefire deal. Yet one rough gauge of regional tensions – the
cost of shipping cargoes around the world – doesn’t inspire much
confidence.
    Prior to Israel’s war last October, an oversupply of ships
looked set to depress freight rates, and thus the bottom lines
of Denmark’s $25 billion Maersk  MAERSKb.CO  and Germany’s $30
billion Hapag-Lloyd  HLAG.DE . But since then Houthi militants
aligned with Israel’s foe Iran have repeatedly attacked
container ships passing through the Red Sea, blocking the key
Suez Canal conduit. As ships reroute around Africa, the need to
maintain trade at previous speeds has eaten through the glut and
started to hike rates.
    All freight companies have benefitted. Just before Hamas
attacked Israel on Oct. 7, the cost of shipping a 40-foot
container from China to the U.S. west coast, for example, was
around $1,600, according to an index compiled by freight booking
platform Freightos. That rose to around $5,000 when detours
around Africa became more widespread in February. Recently, amid
peak shipping season in the run-up to Thanksgiving and
Christmas, rates hit $8,000.
    Like the price of oil, shipping costs are an imperfect
barometer of Middle East strife. Rates have also spiked due to
companies’ desire to frontload cargoes ahead of tariffs
announced by U.S. President Joe Biden on $18 billion of Chinese
goods – a dynamic that may intensify if Donald Trump replaces
him. Still, Red Sea blockages are correlated to the war.
    The best placed freight groups are those with shorter-term
contracts that benefit from the higher prices. Ironically, that
includes $2.6 billion Haifa-based Zim Integrated Shipping
 ZIM.N , in which the Israeli government holds a golden share.
One industry expert estimates 70% of its contracts are the more
lucrative flexible spot ones. So far this year, Zim’s
U.S.-listed shares have risen about 120% while those of
Hapag-Lloyd and Maersk – which have more longer-term contracts –
are up 11% and down 10% respectively.
    Zim and Maersk executives don’t see a rapid end to elevated
rates. On Monday, Zim reported a 50% increase in revenue in the
March-June quarter year-on-year, and guided its 2024 operating
profit outlook higher. Importantly, the Israeli group reckons
the only risk to that forecast is that the Red Sea crisis
concludes and Suez traffic resumes, a scenario it sees in the
short term as “less likely”.
    Blinken’s efforts notwithstanding, Israel and Hamas have
struggled to find common ground for over 10 months. Even if a
peace deal is reached, the fear of Houthi attacks will persist.
Either way, investors may be better served focusing on shipping
forecasts, rather than political ones.
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    CONTEXT NEWS
    A Greek-flagged oil tanker was adrift in the Red Sea on Aug.
21 after repeated attacks that started a fire on the vessel and
caused the ship to lose power, the UK maritime agency said.
    No group has yet said it was behind the attacks, which
Greece’s minister of maritime affairs condemned as a flagrant
violation of international law, according to the BBC.
    U.S. Secretary of State Antony Blinken departed from the
Middle East after a trip to the region to inject urgency into
efforts to broker a Gaza ceasefire deal, Reuters reported on
Aug. 20.
    After meeting with Prime Minister Benjamin Netanyahu on Aug.
19, Blinken said Israel had accepted the proposal and urged
Hamas to do the same. The Palestinian group has not explicitly
rejected it, but says it overturns previously agreed terms. The
details of the so-called bridging proposal have not been made
public.
    Iran has threatened to retaliate against Israel after the
assassination of Hamas leader Ismail Haniyeh in Tehran on July
31.

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Graphic: Zim’s share surge reflects its higher exposure to spot
rates    https://reut.rs/4fWnGRa
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 (Editing by George Hay and Oliver Taslic)
 ((For previous columns by the author, Reuters customers can
click on  CHEN/ 
yawen.chen@thomsonreuters.com))