The cost of shipping fuel by sea has in some cases soared above $100,000 a day due to continued disruptions in the Suez Canal and Red Sea caused by attacks by the Houthi rebels, Bloomberg reported this week.
According to data from the Baltic Exchange in London, the price of shipping oil and refined products from the Middle East to Japan surged by 3% on Thursday alone, to $101,000 a day, the highest cost for that particular route since 2020.
The same trend has been observed for vessels carrying fuel from the Middle East to Europe. Tanker costs on this route have surged to within the range of $97,000-$117,000 per day, depending on the size of the ship.
The Houthis, an Islamist group that controls a large part of Yemen, have been attacking and hijacking ships crossing the vital waterway that handles about 15% of global trade in what they claim is a show of solidarity with the Palestinians. Despite the US and allies having deployed a naval taskforce to the area to safeguard shipping, many freight companies have halted travel through the waterway and instead make the far longer and more expensive journey around the Cape of Good Hope in Africa.
According to an earlier report by the Wall Street Journal, citing data from London-based Drewry Shipping Consultants, the average worldwide cost of shipping a 40-foot container jumped 23% to $3,777 in the week ending January 18, more than double what it cost only a month prior.
Freight fallout began with container ships. It is now significantly impacting product tankers — the vessels that transport gasoline, diesel, jet fuel, naphtha and other petroleum products.
Larger product tankers that do long-haul runs are diverting around Africa in increasing numbers. These ship types include LR1s (with capacity of 55,000-79,999 deadweight tons or DWT) and LR2s (80,000-119,000 DWT).
Extended transit times for long-haul product tankers are having the knock-on effect of hiking demand for regional replacement shipments using short-haul vessels known as MRs (25,000-54,999 DWT).
Evercore analyst Jon Chappell said in a report on Wednesday, “Longer voyages as more tankers bypass the important Red Sea/Suez Canal chokepoint will further add to ton-miles [volume multiplied by distance], potentially causing vast disruption to trade routes and adding more potential upside to spot rates that are already supported by strong fleet utilization.”
Spot rates for modern-built (2015 or later) LR2s averaged $84,800 per day on Wednesday, up 132% year on year (y/y), according to data from Clarksons.
LR2 rate gains are being led by the Middle East Gulf-Europe route — the trade directly affected by Houthi attacks in the Red Sea — with modern-built LR2 spot rates on this route now averaging $92,100 per day.
“Product tanker rates have continued to gap up,” said Jefferies analyst Omar Nokta on Wednesday. “LR2s in particular have broken out. With the vessels fixed to the European market most likely to divert around the Cape of Good Hope, many of these will be laden for longer and lead to an even tighter balance in the coming weeks.
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