The Red Sea Spaces - Summary
Today I hosted a 4 hour marathon open forum spaces on Red Sea / Suez Canal issues. A number of maritime and naval experts joined in. Here's the summary.
Wow! What an afternoon. After a marathon spaces, I’ve made some notes on the marathon 4 hour spaces and what each person contributed.
Key themes:
Up to 70% of Suez Canal throughput is already disrupted
Shanghai container freight futures have nearly doubled in a week
A military solution won’t return canal to throughput - commercial ships will avoid a war zone
US fleet parking in the Red Sea presents real risks
Naval escorts will greatly reduce throughput rates
Coordination between navies and merchant ships, many different languages, with Houthis in middle playing psyops makes whole thing chaotic
Congestion in Jeddah, North end of Suez Canal, and off Bab al-Mandab which will need to be cleared
Diversions have already added a month of delays to freight schedules
In fighting among coalition - Australia refused to participate in US Naval plan, France backed out and will be providing its own escorts only for its own ships (CMA CGM)
Houthis can hide out and hit a ship every week or two and still largely disrupt traffic
Disruptions continue for minimum 30 days even if Houthis say all good tomorrow - this will have much greater impact than Ever Given (when the container ship got stuck in the canal)
Big loser is Egypt
Individual contributors:
Sal Mercoglianos - Spoke to already large existing disruptions and diversions and internal conflicts within US navy as well as coalition issues.
Charles Bonner - Fuel consumption topic. Pointed out many containers are actually slowing down, all ships may not speed up, though confirmed fuel consumption curve is exponential with speed. 4.6M bpd bunker consumption. Spoke regarding South African situation - if more ships divert around Cape of Good Hope could change bunkering patterns. South Africa doesn’t have the local inventories to handle many ships going around the cape. Will require new tanker trade routes to supply bunkering needs. Bullish crude and product (crude can carry HSFO, product carries VLSFO/MGO). more Great wing man for me regarding accurate statistics.
John Konrad - France pulling out of coalition deal - only want to escort their ships. US hasn’t been able to get its own deal through. Defense, Navy Departments, White House all bickering about what to do. Chaos trying to communicate between various navies and merchant ships while Houthis are playing psychological games with individual ships. Sees 30-50% reductions in canal throughput on average through next month, with much deeper disruptions in the near term and hockey stick shaped recovery pattern.
Calvin Froedge - Panama and Suez Canal have never been blocked simultaneously. We’re starting a potentially incredible shipping bubble from a point of already great balance sheets. In tankers and dry bulk, the order books are even really good. Buy anything that floats. Supply chains are still in a fragile state, inventories never really completely recovered to pre covid levels despite restocking (inventory to sales ratios).
Josh Young - Increased fuel consumption is possible from the fleet speeding up as rates increase. Charles shared the fuel consumption curve.
WTI Realist - Slightly bearish on oil because of producer hedging. Sees possibility of Saudis flooding the market as very remote. Sees a higher geopolitical risk premium in oil.
Professor - US Navy capable of escorting, but limited on merchant defense capabilities of ships
Tim - Commercial ship captain. Disruptions / reroutes alone have already caused weeks of delays. Even if Houthi situation is solved tomorrow it will take months for disruptions to smooth out. Sees deep reductions in canal throughput for next 45 days, 75% in the near term.
Craig - Huge traffic jam in Jeddah. Sees 20-30% reductions in canal throughput over the next month.
Gunny - Multi decade naval combat veteran. Thinks navy can place ships throughout the Red Sea / Bab al-Mandab area, ships in rotating pattern covering sectors, aircraft from carrier remain airborne increasing coverage capacity and adding offensive element.
Others spoke as well, and I’ve done my best to summarize everyone’s contributions.
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