TD Queen says disruption caused by Houthi attacks on cargo ships in the Red Sea could benefit cargo shipping companies' margins.
Freight forwarding companies provide shippers with a range of services from routing to pickup and delivery. They are expected to benefit from higher prices and additional fees as shipping companies attempt to bypass the Red Sea via alternative routes.
The segment includes Expeditors International of Washington Inc. EXPD,
fedex corp FDX,
Which provides air freight services, United Parcel Service Inc. UPS,
Supply Chain Solutions, Deutsche Post AG DHL,
Owned by DHL Global Forwarding.
Quinn says the chances of a near-term solution to Iran-backed Houthi attacks on commercial ships in the Red Sea are low. “Ocean spot rates between Europe and China have jumped more than 200% from the fourth quarter; we believe prolonged disruption will benefit freight forwarder margins (higher rates and surcharges) although it is unlikely that “It leads to severe disruptions to the supply chain.”
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The Red Sea is an important shipping lane for goods passing through the Suez Canal, which is said to account for about 12% of global trade. The New Zealand government reported in 2021 that nearly 30% of global container traffic transits the Suez Canal, transporting $1 trillion worth of goods annually.
TD Cowen analyst Jason Seidel points out that ocean freight forwarders primarily help shippers with shipment consolidation, routing, sea/air freight contracts, and pick-up and delivery options. “Freight forwarders have contracts with large air and ocean carriers (usually negotiating annual contracts) that pre-set rates based on shippers’ expected volumes for different shipping lanes,” he wrote in the memo. “These contracts can be adjusted frequently during the year based on market conditions.”
“With ocean carriers now circling the Red Sea via the Cape of Good Hope (which adds 8-12 days from the Middle East and Southeast Asia to the Port of Rotterdam), rates need to be passed on to shippers and be clear in spot ocean pricing,” Seidel added. These are affected trade lanes.” “Diverted, time-sensitive freight should increase demand for freight services (including air) for shippers in the near term.”
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Last week, the United States and partner countries, including Australia, Canada and the United Kingdom, warned the Houthi rebel group against launching further attacks on ships in the Red Sea. The Shiite political group, which controls much of Yemen, has targeted cargo ships with an array of weapons in recent months, including the first use of anti-ship ballistic missiles against such vessels. A naval drone attack was launched from Yemen just hours after countries warned the rebel group.
Houthi attacks in the Red Sea prompted shipping giant Maersk.A,
Maersk.b,
To stop its transit through the shipping artery and the adjacent Gulf of Aden. Maersk said on Friday that it would divert its ships away from the Red Sea.
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The company said in a statement: “The situation is constantly evolving and remains very volatile, and all available intelligence confirms that the security risks remain at a significantly high level.” “We have therefore decided that all Maersk vessels scheduled to transit the Red Sea/Gulf of Aden will be diverted southward around the Cape of Good Hope for the foreseeable future.”
The company added: “We understand the potential impact this will have on your logistics operations, but please rest assured that all decisions have been carefully considered and ultimately prioritize the safety of our ships, sailors and your cargo.”
