Introduction

The Iranian-backed Houthis have announced a significant scaling back of their attacks on commercial vessels in the Red Sea, following the implementation of a Gaza ceasefire that took effect on Sunday. This development is crucial for the maritime industry, which has been grappling with the impacts of these attacks on global trade routes.

The Houthi Campaign and Its Impact

The Houthi campaign, which began with the seizure of the GALAXY LEADER in November 2023, has resulted in two vessels sunk, multiple ships damaged, and four seafarer casualties. Frequent drone and missile attacks on commercial and naval vessels in the Southern Red Sea and Gulf of Aden have forced much of global trade to divert around the Cape of Good Hope, resulting in longer transit times, higher shipping rates, and increased emissions.

Recent Developments

The recent announcement from the Houthi Humanitarian Operations Coordination Center confirms they will no longer target ships bound for Israel, American or British vessels, or those partially owned or operated by Israeli interests. Despite this positive development, shipping industry experts remain cautious about an immediate return to Red Sea routes.

Industry Response and Freight Rates

According to Xeneta, carriers are planning a phased approach, beginning with smaller vessels below 10,000 TEU capacity before gradually introducing larger containerships. The transition to normal operating conditions could take 1-2 months due to the complexity of ocean container shipping networks. The impact on freight rates is expected to be significant. A large-scale return to Red Sea routes could lead to an 11% drop in global TEU-mile demand for 2025, according to Xeneta. Combined with new ship deliveries, this capacity flood might trigger a collapse in freight rates despite improved carrier capacity management.

Ceasefire Agreement and Potential Triggers

The ceasefire agreement, signed in Doha, Qatar, includes a 42-day first phase with provisions for suspension of hostilities, Israeli military withdrawal, and increased humanitarian aid. However, potential triggers for renewed attacks include UK/US airstrikes in Yemen or a breakdown in the Gaza ceasefire, notes Martin Kelly, Head of Advisory at EOS Risk Group.

Conclusion

While the scaling back of Houthi attacks on commercial vessels in the Red Sea is a positive development, the maritime industry remains cautious. The phased return to normal operating conditions and the potential impact on freight rates highlight the complexities and risks involved in navigating these crucial trade routes.

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