Dry bulk ships have favoured the Cape of Good Hope over the Suez Canal in recent weeks as Houthi missile attacks have struck several bulkers, which has resulted in higher mileage for Kamsarmax and Capesize carriers and driven freight rates up.
Recent attacks in the Red Sea have spurred many shipowners to use the Cape of Good Hope instead of the Suez Canal regardless of the additional cost. For instance, Japanese shipping companies Nippon Yusen Kaisha, Mitsui OSK Line and Kawasaki Kisen Kaisha — three of the largest shipowners in the world — temporarily suspended Red Sea transits for all their vessels in response to attacks by Yemen's Houthi rebels on ships in January.
At least four Kamsarmax and Capesize vessels sailing from Australia to Europe were diverted from the Red Sea via the Cape of Good Hope. One vessel, the Post-Panamax Caroline Oldendorff was already in the Red Sea when it was diverted around the Cape of Good Hope on 15 January, leading to a significant backtrack. The ship had been sailing from Hay Point to Rotterdam but was redirected after the Houthis attacked the Gibraltar Eagle, an Eagle Bulk-owned bulk carrier, on 15 January.
Six out of seven vessels sailing from Australia to Europe in January decided not to wait and sailed southwards to Bass Strait, according to vessel-tracking service FleetMon.
Most of the vessels carrying coal from the US and Colombia to Asia-Pacific were rerouted via the Cape of Good Hope instead of the Suez Canal as well. And the Red Sea situation could also disrupt the flow of ballasters between Pacific and Atlantic regions as ballasters will take longer to arrive, and shipowners could potentially leave their fleet within either the Atlantic or Pacific basins, creating a shortage of material.
Another dry bulk route under pressure from the Red Sea turmoil is the east Canada to Asia-Pacific iron ore route, which is key for the Capesize market. Six out of seven Capesize vessels that sailed from Sept Iles and Pointe-Noire to Asia-Pacific in January headed via the Cape of Good Hope, while just Genco-owned Genco Maximus sailing from Pointe-Noire on Thursday is still intending to sail via the Suez Canal. But it can still divert or potentially discharge in Ain Sokhna, Egypt.
Meanwhile, Russian and Ukrainian cargoes of coal, iron ore and grains from the Black Sea are still mostly using the Red Sea. Just one Panamax, Xin Run, sailing from Ust-Luga to Asia-Pacific from 2 January has been diverted via the Cape of Good Hope. But the recent attacks have increased the cost of additional insurance for hull and machinery in the Red Sea by 0.75pc, according to shipbrokers. Freight costs for Panamax cargoes loading from Novorossiysk to China rose by $7/t to $59/t over 17-18 January, which is close to the cost of affreightment of a Panamax on the grain route from Ukraine to China — $62.20/t. It may weigh on grain exports from the Black Sea to Asia-Pacific.
In the Baltic region, Kazakh coal loading from the Latvian port of Ventspils to Asia-Pacific has been diverted via the Cape of Good Hope. The Kamsarmax Bass sailed on 6 January, and is now passing west Africa destined for India, according to FleetMon.
Black Sea grain losing momentum in Asia-Pacific
Many grain buyers in southeast Asia are opting to forego Black Sea-origin grain altogether despite some vessels continuing to sail via the Red Sea or taking the alternative route around the Cape of Good Hope.
Grain prices have not risen on the back of the Red Sea disruption with supply outweighing demand in many destination markets.
But if the risk to shipping prevails into 2024-25, its impact on grain prices around the Pacific basin could intensify, depending on the sizes of major exporters' harvests relative to one another. Russia is likely to have the third bumper wheat harvest in a row, and sellers of the origin could remain under pressure to find outlets for Russian wheat in 2024-25.
Some voyages fulfilling older contracts have been diverted to sail around the Cape of Good Hope, namely at least three cargoes of French wheat shipping to China. But new business to China may be less likely because of limited demand and competitively offered Australian Standard White and US Soft Red Winter wheat.
In contrast, the impact on grain markets in Mena could be considerably stronger. Asian buyers' limited interest in securing grain cargoes from the Black Sea and the EU could significantly boost supplies available to buyers reachable without crossing the Red Sea or sailing around the Cape of Good Hope.
A reduced likelihood of China-bound demand could push sellers of French wheat to jump back in the competition for Mena wheat tenders, but they may find it difficult because of Russian wheat sellers' lower offers.
