Just when shipping companies are announcing that they will not sail through the Bab el-Mandeb strait, the entrance to the Red Sea from the Indian Ocean, which is threatened by the Houthi rebels in Yemen, the share price of Israeli company ZIM Integrated Shipping Services (NYSE: ZIM) shot up 31% last week, after a long period of decline. Since the beginning of 2023, the share price has lost 23%.
What lies behind last week’s rise? Chen Herzog, chief economist at BDO Consulting Israel, explains it by the fact that everyone is in the same boat, as it were. "Even after the rise, the stock is still priced relatively low," he says. "But if until a week ago, it was thought that the risk from the Houthis was relevant to Israeli ships or those carrying cargo to Israel, the deterioration of the situation and the realization that four of the five largest companies in the world were ceasing to transit the Suez Canal turned the maritime crisis into a global problem."
This, Herzog says, means that ZIM is no longer in an inferior position in relation to its international competitors. "In effect, ZIM no longer carries a higher risk premium for having to sail around Africa," he says.
"There are two factors at play. In a world in which ZIM cannot sail through the Suez Canal and its competitors can, it loses market share, because cargo will go to the competition. In addition, if everyone is going around Africa, then all the shipping companies will raise prices, and there’s no problem peculiar to ZIM. Prices will rise at all the companies, and in the end the price rise will come out of consumers’ pockets."
Can we expect universal supply chain disruption?
"There’s certainly a particular problem here in the supply chain, because about 30% of the world’s container shipping and 12% of seaborne oil traverses the route between the Bab el-Mandeb strait and the Suez Canal. It’s not that the cargoes won’t reach their destinations, but they are being delayed by at least two to three weeks."
Herzog says that the countries in the region mainly affected are Egypt and Jordan. "Every month that the canal is closed, Egypt loses NIS 3 billion in transit fees. As for Jordan, the port of Aqaba is its only outlet to the sea, and in effect it is under total maritime siege," he explains.
Published by Globes, Israel business news - en.globes.co.il - on December 18, 2023.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.