While major UK and European retailers like Next PLC (LSE:NXT) have warned of supply-chain issues due to the ongoing Red Sea piracy crisis, Maersk has emerged as an unwitting benefactor.
The container shipping giant has announced that all routes have been diverted away from the Red Sea/Suez Canal corridor in favour of the long way around Africa’s Cape of Good Hope.
A Singapore-to-the-Mediterranean voyage via the Suez Canal is approximately 5,000 nautical miles over roughly two weeks. Traversing the Cape of Good Hope more than doubles this route.
“The situation is constantly evolving and remains highly volatile, and all available intelligence at hand confirms that the security risk continues to be at a significantly elevated level," Maersk said in a Friday statement.
Analysts at Jefferies noted that this “sudden change” in fleet schedules has reduced near-term capacity while sending spot freight rates soaring.
In fact, freight rates have surged “well above profitable levels”, according to Jefferies.
Asia-Europe rates have risen to above $3,500 per forty-foot-equivalent unit (feu) from just $1,500/feu in mid-December. They averaged $1,550/feu throughout the whole of 2023.
Transpacific rates are also now above $3,500/feu, compared to $2,500/feu in mid-December and a 2023 average of $2,600/feu.
Though the squeeze is likely to abate once schedules are adjusted and more ships become available, Jefferies predicts that freight rates “should see a higher floor than previously expected given the overall disruptions”.
Prices could also remain elevated due to thin competition in the liner sector, which remains “deeply consolidated with the top nine operators, organised into three alliances, accounting for 85% of the market”.
There is little doubt that the crisis will impact European stock levels.
As for Maersk, Jefferies has raised its 2024 EBITDA forecasts a walloping 57%, from $5.9 billion to $9.3 billion, while increasing Maersk’s share price target from 12,000 Danish kroner to 16,500 Danish kroner.