Problems in the Red Sea began around early December and picked up steam in the middle of the month. So shipping stocks must have taken a beating, right? Nope:
Exchange Traded Funds are sort of like mutual funds for a particular industry: they represent the performance of a basket of related stocks. In this case, the four biggest shipping ETFs all show the same thing: strong performance ever since the Houthi attacks began. Middle East Eye explains:
ZIM's share price is up a whopping 50 percent since attacks against vessels in the Red Sea intensified last month.... Shares of Maersk, the Danish shipping giant operating more than 700 vessels, are up about 20 percent in the last month, while German company Hapag-Lloyd — the world’s fifth-largest container shipping group — is up 17 percent.
....Vessels that avoid the waterway and ply trade between the east and west have to take the more circuitous route around the Cape of Good Hope in Africa.... "For them, this is going to deliver increased profitability that they didn't expect to have,” Michelle Wiese Bockmann, a senior shipping analyst at Lloyd’s List Intelligence, told Middle East Eye. "The longer they have to divert, the higher their freight rates. They are definitely winners."
....Companies pass those costs on to consumers, sneaking in extra profit along the way, Sand says. The price to ship a container from China to the Mediterranean has already surged 44 percent this month to $2,413, according to freight booking and payments platform, Freightos.
In a nutshell, it costs more to avoid the Suez Canal and instead sail around the Cape but shipping companies are raising rates even more. They love the Houthis.
Go figure.
Not that it alters the meaning of the post in any way, but the line "Exchange Traded Funds are sort of like mutual funds for a particular industry" is not accurate. ETFs do not have to be for any particular industry. They can be any basket of stocks the same way open end mutual funds can be. Many ETFs try to replicate bench marks like the S&P 500 or Russell 2000. The main difference between ETFs and open-end funds is that ETFs are traded on the stock markets so are bought and sold like equities and priced intra-day.
The quote is accurate. "sort of like" covers a *lot* of ground.
"Go figure."
It is normally spelled "Capitalism".
I was going to be mad at the shipping companies, but then I realized it isn't so weird that their profits would go up... basically, forcing them to take longer routes means there is effectively less total shipping supply (as measured units of containers/day/route rather than units of total ship space for containers). If there is less supply, but the same demand, then prices have to rise until demand drops so that the market can clear. This is independent of changes in shipping costs: basically, if shipping costs rise less than the necessary increase in price, there will be more profit. If shipping costs were to rise more than that necessary increase, then there would be less profit and/or a further reduction in supply.
(if this were a permanent closure, then you'd eventually expect to see more ships built, so that supply could increase to closer to present amounts, and you'd see prices drop to something closer to the increase in shipping costs)
Companies have been bragging that they are using inflation to sneak in extra price increases. There isn't nearly so much competition, so they can.
Any external event helps provide cover to sneak in disproportionate rate/price increases!
There was a surplus of container capacity before this. By increasing travel time the demand for capacity is increased, allowing shippers to increase their utilization rate. Costs go up due to the increased distance travelled per trip. As you would expect, shipping prices go up, but I would not expect anything truly dramatic. The market should handle it efficiently.
Out of the pockets of the Egyptians, into the pockets of the ship owners.
I wonder if the Egyptian government will invest in pirate eradication to reduce their financial losses, or if they will sit back and hope that the US will do that for them?
IIRC, there is something in the history of the US Navy about Tripoli and pirates.
This seems like the "enshittification" of global cargo trade. Taking a perfectly good service and making it worse in order to squeeze more profits out of it, and this time they didn't even need to do anything but respond to current events.
Meh, take the long view. The Baltic Dry index is well below levels a couple of years ago.
https://tradingeconomics.com/commodity/baltic
Economics teaches us that an increase in price leads to reduced demand. Apparently, that is a poor lesson.