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Several carriers have paused Red Sea transits over the last 4 days but diversions to the Cape route are limited to Israel-linked ships at the moment. Barring a naval convoy solution, carriers could be forced to divert all ships to the Cape route which would raise teu-mile demand by at least 2.5m teu or 9% of the global fleet that would result in an immediate capacity shortage.

Spot freight rates have started to rise in response to the Red Sea turmoil, with the SCFI hitting a 12-month high as short term capacity is expected to tighten further. Rates will continue to rise over the next few weeks with the strength expected to persist until the end of January. The escalation has not yet translated to increased charter rates as yet, with surplus tonnage in the smaller sizes below 4,000 teu continuing to push down average charter rates. The Panama transit restrictions is set to improve from mid January with an additional neo-panamax slot offered from 16 January.

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Israeli vessel exodus from Red Sea underway - Neutral ships could soon follow
The withdrawal of Israeli owned and operated ships from the Red Sea routes have started, with 42 Israeli-linked ships rerouted away from the Suez over the past 3 weeks. 20 of these ships on the Asia-Med and North Europe routes have been diverted to the longer route via the Cape of Good Hope while another 22 ships have been redeployed to other trades that avoids the Red Sea. Of note, 5 Zodiac Maritime-owned ships of 19,460 teu operated MSC have been redeployed from FE-Europe to the FE-USWC Jaguar service, becoming the first transpacific service to deploy ULCS containerships of this size on a regular basis. More ships from neutral countries could follow the Red Sea exodus after Maersk, MSC, CMA CGM, Hapag-Lloyd and HMM announced in the past 4 days that they would pause their ships’ journeys in the Red Sea. The alternative route via the Cape would raise round trip transit times by 3 to 5 weeks with ships to the East Med having to make the longest diversions.

The total capacity of containerships on the Suez route currently stands at 8.25m teu which accounts for 29.3% of the global fleet.
If all of these ships are forced to divert from the Suez to the Cape route, it would increase overall roundtrip transit times by some 30% and raise global teu-mile demand by at least 2.5m teu which is equivalent to 9% of the current global fleet. The impact will be higher if vessel speeds are not increased to minimize the schedule delays.

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