European shipping stocks surge amid escalating Red Sea attacks and Suez Canal diversion

Shipping stocks experienced an upswing on European exchanges on Monday as Houthi militants, believed to be backed by Iran, escalated attacks on vessels in the Red Sea. This prompted major freight companies, including Denmark's AP Moller-Maersk, to divert from the Suez Canal. Traders speculated that a prolonged disruption of this crucial route, facilitating East-West trade, could lead to increased shipping rates.

In early trading in Copenhagen, Maersk saw a 3.5 per cent rise, though some gains were later trimmed. By 0930 GMT, D'Amico International Shipping, Hapag Lloyd, and Hafnia observed gains ranging from 3 to 4 per cent. Frankfurt-listed shares of Scorpio Tankers and Nordic American Tankers experienced increases of 5.6 per cent and 8.9 per cent, respectively.

Transport time concerns

Analyst Massimo Bonisoli from Equita highlighted the belief that avoiding the Red Sea route for crude and product cargoes could extend transport times, potentially raising freight rates further if the situation persists.

Jefferies analysts noted that if ships opt to circumnavigate the Cape of Good Hope instead of using the Red Sea, the impact on utilisation would be significant, particularly affecting containers and tankers. Highlighting the importance of the Suez Canal in global seaborne trade, they anticipated stronger rates across all shipping segments in the near term. Jefferies also suggested that military-supported convoys could be a preferable alternative to circumnavigating the Cape of Good Hope.

In terms of transit time, Jefferies pointed out that a tanker travelling from the Middle East to Europe via the Suez Canal would take 17 days, compared to 41 days if going around Africa. They concluded that, under the circumstances, military-backed convoys might offer a more viable option than the longer route around the Cape of Good Hope.

On Friday, Maersk announced the suspension of all its container shipments through the Red Sea until further notice, a decision later followed by Swiss-based MSC and French shipping group CMA CGM on Saturday.

(With Reuters Inputs)