Diversions in the Red Sea are leading container lines to require more ships to maintain cargo volumes, as security concerns, exacerbated by coalition air strikes in Yemen, have driven up spot container freight rates significantly. This surge in rates is now also impacting the prices that container lines must pay to rent ships.
Market reports from MB Shipbrokers and Braemar indicate a heightened demand for prompt tonnage, with owners becoming more aggressive in seeking higher charter rates across all segments and regions. Charter rates are on the rise, particularly for short-term durations of three to six months.
The Red Sea effect is starting to have an impact on the charter market, with Alphaliner noting that demand for charter-market ships remains strong despite newbuilding tonnage entering the market. The crisis in the Red Sea has caused carriers to avoid the area, leading to brisk activity in the market.
Due to diversions away from the Red Sea, liners have had to charter extra ships for short terms to maintain schedules. As diversions persist, liners will need to add more vessels to their strings to uphold weekly schedules, requiring additional chartering or purchasing of ships. The increase in charter rates is evidenced by the 12% rise in the Harpex index measuring charter rates for ships with capacity up to 8,500 twenty-foot equivalent units since mid-December.
While spot freight rates have more than doubled over the same period, charter rates have not seen as significant of an increase. Despite an expected weak year for charter rates in 2024, the Red Sea effect has pushed the Harpex index 28% higher than it was in January 2019.
The limited availability of vessels for chartering poses a challenge in today’s market, with most tonnage already tied up in long-term leases. Liner stocks are expected to benefit more from Red Sea disruptions than NOO stocks, given the rapid rise in freight rates compared to charter rates.
Shares of liner operators like Zim, Hapag-Lloyd, and Maersk have seen significant increases, while NOO stocks such as GSL, Costamare, and Danaos have seen more modest gains. The impact of the Red Sea crisis is evident in the performance of these stocks, with those with more exposure to the 2024 charter market seeing the greatest increases.
