RIYADH: Saudi Arabia’s King Fahd Industrial Port in Yanbu will be modernized further as the ports authority has established new ship anchorage areas in the facility.

The newly established docking zones will help modernize several logistical services in the port which includes delivering ships with supplies and fuels, the authority, also known as Mawani, said in a statement.

The establishment of anchorage areas is aligned with Mawani’s efforts to advance the Kingdom’s ports aimed at positioning Saudi Arabia as a global logistics hub.

Saudi Arabia’s National Transport and Logistics Strategy seeks to increase the sector’s contribution to the Kingdom’s gross domestic product to 10 percent from the current 6 percent by 2030.

The press statement further added that the anchorage areas are expected to increase the operational performance indicators in the port, along with reducing the docking time of ships.

These areas will also increase the number of ships that can be accommodated in the port to 27, representing an increase of almost 440 percent, compared to five ships previously.

“The establishment of these zones contributes to the development of the port’s capabilities, which is characterized by its strategic location on the Red Sea coast, and its geographical proximity to national factories within Yanbu Industrial City, making it the best choice for companies working in the field of export,” said Mawani.

It added: “These zones will provide all the operational services necessary for the success of transport operations, in addition to securing the requirements of industrial complexes.”

In December 2023, Mawani garnered 79.01 points in the UN Conference on Trade and Development’s Liner Shipping Connectivity Index for the fourth quarter of 2023, compared to 77.66 points in the previous quarter.

Mawani highlighted that Saudi Arabia has made significant strides in the logistics sector, establishing 28 new cargo services in collaboration with leading shipping liners in 2023.

Additionally, the Kingdom has achieved substantial progress in container handling, moving from 24th to 16th position in the Lloyd’s List One Hundred Ports rankings.

Moreover, Saudi Arabia also ascended 17 places in the World Bank’s Logistics Performance Index, securing the 38th position out of 160 countries.

Source: Ports authority establishes new anchorage areas to boost King Fahd port’s efficiency (arabnews.com)

With the start of the new year, the crisis now appears to be impacting Red Sea vessel counts in the crude tanker segment, while spot rates in the Atlantic routes have spiked and piqued the interest of the market, signalling an escalation of the crisis with daily occurrences of new attacks.

In the dry bulk segment, the market has not experienced a significant impact yet. However, as time progresses, the threat of Houthi attacks on both dry and wet seaborne trade appears to be escalating. Figure 1 below, examines which segments were the most exposed to Suez canal crossings in 2023. Suezmax and Aframax and Supramax and Panamax represent more than half of the total crossings in tankers and dry bulk respectively.

Using Signal Ocean data, it becomes quickly clear that if we want to look for the most affected trades we need to start with the crude oil Suezmax and Aframax trades and the agricultural commodities transported with Panamax and Supramax dry bulk vessels.

But what happens if the effects already clearly felt in container traffic begin having a deeper impact on wet and dry bulk commodities too? The obvious ramification, namely the detour of ships via the Cape of Good Hope can certainly increase further, even beyond 50%, as we are increasingly encountering and anticipating announcements of suspension of shipments via the Red Sea.

Several major shipping companies have already announced the suspension of shipments, while more are saying they are closely monitoring the situation and are about to make a decision. The shipping associations BIMCO, ICS, CLIA, IMCA, INTERCARGO, INTERTANKO and OCIMF have already issued joint guidelines emphasising the importance of a relevant hazard and risk assessment. This includes considering additional advice from the ship’s flag state before transiting the area in question.

So how much would the various vessel classes be affected if suspension of crossings escalate? We begin looking for an answer by inspecting the exposure of each class to the relevant routes.

So, not only do Suezmax and Aframax tankers, together with Supramax and Panamax Dry, dominate the canal’s time, but it appears that crossing it happens while serving a very substantial part of the total global ton-miles for the trades these vessel segments serve.

Zooming out from the shipping intricacies, we also need to consider the impact from the perspective of the affected commodities. In Figure 3, we see that 20% of the worldwide trade for fertilizers goes through Suez. Gains and clean petroleum products are also highly exposed with a 13% and 10% share respectively.

Although there has been speculation that Houthi attacks have been more focused on containers, any such situation is so volatile that nobody can actually predict how it will unfold. So there is little ground to sustain that re-routing could be based on segment and/or cargo considerations. Rather, as it is always the case, risk vs cost and benefit is likely to determine where we go from here.

The impact on the Freight Market

The spot market for crude oil tankers is already seeing an upward trend in the Atlantic routes, particularly with Suezmax rates in the West Africa to UK/Continent and Aframax rates in the Mediterranean trades. These markets had last surged in November ‘23 and mean-reverted over the holiday season. The decline in vessel numbers foreseen in the Red Sea for the tanker segment has already reached a record low since the beginning of last year, resulting in an increase in WS rates for the Suezmax Wafr-UKC of more than 50% to a level of around 140 WS and Aframax Cross Mediterranean rates of over 200 WS. (Figure 4) In the VLCC segment, a spike has also been observed for the West Africa to China run, with rates at around 70 WS, an increase of almost 40% year-on-year. With Suezmax and Aframax more exposed to the canal, the impact appears to be more direct.

The looming risk appears to escalate, and the duration of the disruption will play a crucial role in determining the extent of its impact. Depending on the duration, it could usher in a substantial wave of consequences, notably affecting the increase in tonne miles for major oil trading routes.

Utilising Signal Ocean data, we conducted a sensitivity analysis (Figure 5) to delve into the magnitude of the impact on trading, seeking to discern patterns and trends in response to the unfolding events.

Sensitivity analysis

Having established the more direct impact on Suezmax tankers and the relevant commodity flows, we take an opportunity to reflect on what might come to pass by way of sensitivity analysis. We examined the Suezmax tanker vessel class in light of recent developments at the Suez Canal crossing. The observed decline in the number of dirty tankers in the Red Sea is notably influenced by the current situation, exerting upward pressure on market prices. The figure below illustrates how ton-miles could potentially increase under various scenario percentages, should there be a decision to reroute ships via the Cape of Good Hope. The data indicate a significant impact, with rerouting scenarios of over 40% share leading to a potential global ton-mile increase of more than 10%.

Looking at the Suezmax vessels engaged in the trade route between the Black Sea and India, the potential impact of maintaining the current route versus rerouting through the Cape of Good Hope is significant. The distance travelled would be three times as long, which means that the freight would need to be almost double in order to achieve the same earnings (TCE). In the case of Black sea to India for example, the freight increase could be in the order of $4 million. This corresponds to an overall increase in transportation costs of the order of $7 per barrel.

In the event of such a rerouting scenario, the critical question is whether India would develop alternative sources of crude oil in the Arabian Gulf or West Africa. It is also uncertain whether Russia would adjust its crude oil prices downwards to remain competitive, taking into account the additional transportation costs. This complex interplay of factors underscores the importance of potential changes to shipping routes and their broader economic impact.

How players have responded to the Red Sea threat

The escalation of Houthi attacks in the container segment since December and the announcement by a number of players to halt transit traffic has led to others following suit and the list of names in other shipping segments is growing longer. In the energy sector, Torm and Shell appear to be amongst the most vocal and decisive movers, while BP joined the list back in December. Despite the challenges, Chevron has maintained its crude oil shipments in the region, working closely with the US Navy’s Fifth Fleet. The unrest in the Red Sea poses a significant threat to the uninterrupted flow of oil. If the escalating tensions lead to a significant disruption of supply in the Middle East, prices could fluctuate rapidly, according to Michael Wirth, Chevron’s CEO. January days exacerbate the negative impact on the crude oil supply chain as oil prices spiral downward.

Looking ahead

Surpassing the 100-day mark, the conflict in the Middle East appears to have transitioned into a new phase. Despite China being Israel’s second-largest trading partner, Beijing has maintained silence on the ongoing war between Israel and Hamas in the Gaza Strip. However, in a recent development, China has called for an end to attacks on civilian vessels in the Red Sea. The Indian economy is now under a serious risk for a significant increase in the cost of crude oil imports. There is a market speculation that the ongoing tensions in the Red Sea could lead to a $10-20 increase in oil prices for oil-importing countries like India, which could have negative effects on its economy.

Nevertheless, it’s remarkable that oil prices have been struggling to break through the 80 dollar per barrel barrier for several weeks despite the heightened tensions in the Red Sea. Against speculative scenarios that oil prices could rise to over $100 per barrel in the first half of the year due to a direct threat to crude supply, the current picture of oil prices is developing below the exaggerated estimates.

There is no doubt that the Houthi attacks have significantly disrupted container trade, leading to uncertainty about the duration of these disruptions. Across the world, shipping companies are adapting to changing market conditions. While the impact on the container trade is obvious, the extent of the impact on other categories of goods trade remains uncertain. So far, the attacks have not yet had a major impact on dry bulk and tanker shipping.

In the oil sector, the observed decline in transits across the Red Sea is primarily the result of precautionary measures taken by the energy industry to prevent a recurrence of the problems in the container segment. In the dry bulk sector, the recent attack on a Supramax bulk carrier is a cause for concern. This incident raises fears that there could be further attacks in the future, leading to increased deviations and spot rates in the smaller bulk trade. The full extent of the impact on the various commodity segments remains to be seen as the situation continues to evolve.
Source: Signal Group, By Maria Bertzeletou, https://www.thesignalgroup.com/newsroom/the-red-sea-escalation-implications-on-global-seaborne-trade

This figure surpassed the 2022 total of 10,439,620 containers, as reported by the Saudi News Agency. 

Simultaneously, facilities managed by the Saudi Ports Authority, also known as Mawani, achieved a 12.07 percent annual increase in container handling for 2023, totaling 8,443,746 compared to 7,534,307 in 2022. 

The body’s cruise ship containers also saw an annual uptick of 8.96 percent, reaching 3,237,490 in 2023. 

Exported containers registered a 13.88 percent increase in the ports of the Kingdom, reaching 2,744,332 compared to 2,409,767 in 2022. 

Also, imported containers increased by 10.51 percent to reach 2,737,910 compared to 2,477,555 in 2022. 

Regionally, cruise ship containers recorded a 6.23 percent increase, reaching 5,896,060 in 2023.

This positive growth in container handling reflects the Kingdom’s success in its leading role in developing the maritime sector and logistical services to enhance operational efficiency in Saudi ports. 

It also aligns with the goals of the National Strategy for Transport and Logistics Services to establish Saudi Arabia as a global logistics hub and a nexus for three continents.

Additionally, the number of cars imported through Mawani’s ports increased by 40.54 percent, reaching 2,483,331 vehicles in 2023, compared to 1,767,016 in 2022.

The number of incoming and outgoing passengers also increased by 41.30 percent, reaching 1,008,856 in 2022. 

Ship movements increased by 7.16 percent, totaling 12,130 ships in 2023 compared to 11,320 in 2022.

In efforts to enhance the food security system and meet local market requirements, the ports under Mawani’s management witnessed the unloading of 8,124,842 head of livestock in 2023, a 110.46 percent increase compared to 2022. 

However, handled tonnages decreased by 5.06 percent to reach 300,542,872 tons compared to 316,570,515 tons the previous year. 

General cargo volumes amounted to 7,624,913 tons, solid bulk cargo reached 49,060,740 tons, and liquid bulk cargo amounted to 152,577,817 tons.

The Saudi Ports Authority set a monthly handling record in May 2023, thanks to an 18.80 percent increase in cargo.

The Islamic Port of Jeddah also registered a new high, with 511,348 containers in October last year. 

The King Abdulaziz Port in Dammam set a new record by handling 211,202 containers in one month in July 2023.

The report added that should the crisis remain unresolved in the next couple of weeks, elevated spot rates could lead to higher contract rates as liners are negotiating their annual contracts with retailers. “This could potentially help prevent the sector profits from declining too much vs the expectations before the disruptions.” Meanwhile, the report said air and rail could benefit from the current disruptions in ocean shipping. “Since rerouting via the Cape of Good Hope means longer voyages, shippers could seek other viable options such as air freight or rail if the Red Sea crisis is prolonged or uncertainty persists on when it could be resolved,” the HSBC Global Freight Monitor further said. Source: https://www.asiacargonews.com/en/news/detail?id=9146