Producers Switch From Ships to Air Transport Amid Red Sea Risks

More companies exporting goods from Asia to Europe are sending them by air rather than ships amid the series of Houthi attacks on ships in the Red Sea.

Normally, producers strongly prefer shipping their goods because it is much cheaper but right now the price difference has shrunk as container ship operators reroute their vessels from the Red Sea to the Cape of Good Hope.

As a result, demand for air transport on Asia-Europe routes has increased and so have airfares: Reuters reported today that the rate for transporting something from China to Europe has gained 91% this week from last week.

Last week saw an exchange of fire between the U.S. and UK navies in the Red Sea and the Yemeni Houthis, with the former hitting targets on land in Yemen. Following the exchange, the Houthis declared all U.S. and UK-linked vessels would be fair game from now on.

A lot of container ship traffic has already been diverted from the Red Sea and the Suez Canal route but many container ships are still using that route, including oil tankers.

Chevron’s chief executive said yesterday that the risk in the Red Sea is very serious and “seems to be getting worse.” Even so, Chevron has not rerouted its tankers away from the Red Sea, Mike Wirth said, as the company works closely with the U.S. Fifth Fleet. 

Unlike Chevron, Shell has stopped shipping crude oil through the Red Sea, reports citing people in the know said earlier this week.

The switch to air transport from shipping is likely to push jet fuel demand higher for the duration of the crisis in the Middle East.

"We are talking to many customers already about increased air capacity," Yngve Ruud, head of Air Logistics at global logistics firm Kühne+Nagel, told Reuters. "We have probably 20-30% more discussions and proposals than usual in January."

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:

• Navy SEALs Seize Vessel with Iranian Missile Parts Bound for Houthis
• Is the Texas Grid Ready for This Year’s Polar Vortex?
• More Drilling Slowdowns for U.S. Oil, Gas Industry