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Oct 25, 2024

Report: Russia Provided Satellite Data for Houthi Attacks in Red Sea

Container ships have been avoiding the Red Sea since nearly a year ago when Yemen-based Houthi militants began bombarding the waterway with missile and drone attacks. A new report sheds potential

Container ships have been avoiding the Red Sea since nearly a year ago when Yemen-based Houthi militants began bombarding the waterway with missile and drone attacks. A new report sheds potential light as to why they’ve been able to maintain the assault so consistently, and so long.

The Wall Street Journal reported Thursday that Russia provided the Iran-backed Houthis with targeting data to help them attack Western ships traveling in the Red Sea headed toward its major global trade artery, the Suez Canal.

The report said the Houthis eventually began using Russian satellite data as they expanded their strikes. It is unclear when they received or have used the data, but it was passed through Iran’s Islamic Revolutionary Guard Corps, who were embedded with the Houthis in Yemen.

According to the report, the U.S. has been concerned that Russia could provide the rebel faction with anti-ship or anti-aircraft missiles that could threaten military efforts to protect ships in the region.

As of Oct. 24, there have been 128 reported maritime incidents in the waters surrounding the Arabian Peninsula since the first Houthi attack last November, according to the United Kingdom Maritime Trade Operations (UKMTO). The repeated nature of such attacks has forced container shipping to largely spurn the Red Sea and neighboring Gulf of Aden, instead rerouting around southern Africa’s Cape of Good Hope, tacking on 10-to-14 days onto a ship’s voyage.

Container shipping traffic in the Red Sea dropped 73 percent year over year as of September, according to data from maritime analytics provider MarineTraffic. In a recent webinar, Drewry Supply Chain Advisors managing director Philip Damas said the consultancy isn’t expecting full-scale Suez Canal transits to resume until 2026.

The Red Sea diversions have been responsible for substantial freight rate increases in 2024 as capacity dwindled and shipping times increased. According to data from Drewry’s World Container Index (WCI), ocean spot freight rates from Shanghai to New York are still up 106 percent from a year ago to $5,266 per 40-foot container. The trans-Pacific route of Shanghai to L.A is up 145 percent to $4,814 on average.

Such an environment has made container shipping firms very bullish about their financial prospects for the remainder of 2024, with both Maersk and Hapag-Lloyd lifting their earnings guidance this week.

Maersk raised its outlook for the fourth time in six months, with the company now expecting earnings before interest and taxes (EBIT) between $5.2 billion and $5.7 billion—well ahead of prior estimates ranging from $3 billion to $5 billion.

On Thursday, Hapag-Lloyd said it is pushing EBIT forecasts up to $2.4 billion to $2.8 billion, compared to the earlier estimate of $1.3 billion to $2.4 billion. This marks the third time the ocean carrier has raised its profit forecast this year.

“Against the backdrop of very volatile freight rates and major geopolitical challenges, the forecast is subject to a high degree of uncertainty,” Hapag-Lloyd acknowledged.

Despite the high prices compared to last year, rates have been on the descent ever since peaking in July, and have further sank with a potential East and Gulf Coast port strike pushed back until January.

While record-breaking volumes going into the West Coast would suggest a crunch in capacity, data from Xeneta illustrates that carriers responded to the strong demand in the third quarter by deploying 19 percent more capacity compared to the quarter prior, and 17 percent more compared to a year ago.

“Looking ahead to November, there appears to be little change in the capacity offered to shippers and freight forwarders on this trade, even when allowing for some announced blank sailings,” said Peter Sand, chief analyst at Xeneta, in a Wednesday blog post. “Unless carriers act more decisively to match offered container shipping capacity to demand through more blank sailings or outright cancelling of peak season services, then short-term market rates are likely to erode at an even faster pace than seen in October.”

Carriers have not only sought out more blank sailings, but they’ve been introducing November general rate increases, “possibly supported by an early start of pre-Lunar New Year demand—in the hopes of pushing rates back up,” said Judah Levine, head of research at Freightos.

One market that has seen collapsing rates is India. According to a report from The Loadstar, spot rates on the India-to-U.S. East Coast trade route have plunged below $3,000 per 20-foot equivalent unit (TEU) from a high of more than $10,000 in July. The report said rates on India-to-Europe routes have more than halved in two months, down to about $2,000 per TEU from $5,000 in August.

Freight forwarders expect rates for shipments to the both markets to further soften through December.

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