We have been experiencing three wars in succession since the year 2020. First, we fought the infection (Covid), then the Russia-Ukraine war, and the the present turmoil in the Middle East. The impact of regional trends on the Global Container Freight Index must be examined using three different components.

Covid, the Russia-Ukraine conflict, and now the Middle East tensions. The third installment of the crisis series has already arrived. So, are the shipowners or charterers who shape the freight index ready for this circumstance? Will they be able to apply the first two crisis series experiences? We must assess the developments in three categories. Other variables such as the slowdown in Israel Ports, the Suez Canal and the Strait of Hormuz, and the price of oil.

Despite the last two crises of the series are similar, their effects will be different.

Obviously, the first two crises of the series were different  from each other. One was the global fight against infection, and the other was the war between the two countries. On the other hand, what is happening between Israel and Hamas, cannot be compared to the Russia-Ukraine war.

If the conflict between Israel and Hamas extends beyond the region's borders, many maritime scenarios will come to the fore for shipping. Because the region has two significant waterways: the Suez Canal and the Strait of Hormuz.  Another issue is the impact of the war on Israel ports.

The impact of events at Israel ports will be limited.

Of course, what is going on between Israel and Hamas is going to have a negative influence on the Israel ports of Haifa and Ashdod, and the impact has already begun. However, the congestion in Israel ports will have little impact on the global container freight rate index. Because Israel ports only handle 0.4-0.5 percent of world trade.

Nowadays, there is a line of vessels in Israel ports due to heightened security procedures. This results in waiting. One of the lessonings from the Covid period was that the freight rate index was adversely impacted by supply chain issues.

Congestion, on the other hand, was experienced at the time in the world's largest ports. We're only talking about port wait times in Israel right now. The scale is not the same, in short, it is clear from the global share of ports that this effect will be quite limited.

But what if the tension spreads?

If the tension begins to affect a wider region, then the freight rate index may be adversely affected. If the Suez Canal closes, vessels may face a lengthy voyage.  A significant part of the container fleet capacity will lose its effectiveness (due to the ton-mile balance). This, in turn, will have a negative impact on the Container Freight Rate Index, causing freight rates to go up.

Let's make a brief reminder. In 2021, the Suez Canal was closed for 6 days when the vessel named "Ever Given" ran aground. Even though it was only temporary, the closure had a 10 percent  effect on spot freight rate. At this point, I would like to give a brief additional information; Although some analysts argue that this effect is higher than 10 percent, it should not be forgotten that the Covid effect continued at that time, and even the emergence of Delta-Omicron variants - and some of the effect was due to the pandemic.

And then there is oil and similar effects.

According to rumors, Israel civilians are being called up for military duty. This step, which may result in manpower shortages, may have a negative impact on the performance of Israel container carriers. If the efficiency of these companies' container fleets declines or certain vessels go out of service, this may adversely affect the container freight rate index.

Another important issue is oil prices. At the time of writing this article, that is, 5 days after the start of the war, oil prices increased by close to 6 percent in one day. This is another factor that can push the Container Freight Rate Index up. The increase in oil prices will automatically raise freight rates as well.

According to some, "Oil prices also climbed during the Russia-Ukraine war, and despite this, the freight rate index started to decline in the weeks following the war."

However, at the time, US reserve oil sales and Middle East supply intervention caused oil prices to decline. It could be different this time. First of all, US reserves have decreased, moreover, as we mentioned, if the war extends beyond the borders of the region, it would have a negative impact on global oil production.

To sum up, the danger in terms of the freight rate index – and therefore global inflation – will increase if the war crosses the border of the region. On the other hand, I think that the impact of the war on freight rates will be limited if only Israel ports and Israel transportation are considered.

 

The information, comments, and recommendations presented herein are not intended to be investment advice.