Suez Canal crisis: GE Shipping says tanker rates stable so far but may spike if situation worsens

Some of world's largest shipping companies halted their operations in the Red Sea from December 15 in response to the intensified assaults on international shipping routes by Iran-supported Houthi militants. This area is a crucial passage for vessels coming from the Suez Canal.

These shipping companies now plan to reroute the shipments via the Cape of Good Hope, triggering concerns of a spike in container rates due to the additional days at sea.

GE Shipping's Executive Director and CFO, G Shivakumar, told CNBC-TV18 that there hasn't been much impact on the tanker rates yet, but if the situation worsens, the rates could spike.

GE Shipping sees strong demand in tanker market

GE Shipping is India's largest private-sector shipping company that transports liquid, gas, and solid bulk products.

Explaining the potential implications, Shivakumar said that about 10% of the world's crude trade flows through the Bab el-Mandeb, the Red Sea and the Suez Canal.

"If you have to reroute that via the Cape of Good Hope, it means, depending on the voyage that you're doing, its between 20 and 60% extra time. If you apply an average of 40% on 10% of the trade, that's 4% extra demand for ships or reduce supply," he noted pointing out that this additional 4% demand can impact the demand-supply balance increasing rates significantly.

Positioned between Africa and the Gulf in the Middle East, the Red Sea is flanked by Egypt's Suez Canal in the north and the Bab el-Mandeb Strait in the south. In addition to these key maritime passageways, the Sumed pipeline traversing Egypt plays a significant role in global oil logistics.

Data from the US Energy Information Administration reveals that these routes combined were responsible for about 12% of all seaborne oil trade in the first half of 2023.  Approximately 8% of global trade in liquefied natural gas also transits through this region, per a Wall Street Journal report.

While the US has also begun a security operation to protect seaborne traffic from the Houthi groups, Shivakumar said it remains to be seen if it will help ease the situation.

Shivakumar said there has not been any impact on prices over the last four days; product tankers continue to earn around $30,000 - $35,000 a day, while crude tankers are earning anywhere between $40,000 and $60,000 a day.

Meanwhile, on December 19, oil prices traded near the highest close in two weeks. West Texas Intermediate held above $72 a barrel after settling at its highest since December 4. Global benchmark Brent traded near $78.

Prices jumped as much as 4% on Monday after oil giant BP Plc said it would pause all shipments through the waterway and Equinor ASA said it’s diverting vessels away.

GE shipping shares were up nearly 4% at ₹959 apiece. The stock has gained nearly 22% in the past month versus gains of a little over 8% in the benchmark Nifty 50. The company's market capitalisation is currently around ₹13,730 crore.