Japan's MOL Suspends Vessel Access to Red Sea/Gulf of Aden Citing Security Concerns

Japan's Mitsui O.S.K. Lines (MOL), a major player in the global shipping industry, has taken the significant step of halting ship entry into the Red Sea from both the Suez Canal and the Gulf of Aden. This decision is a proactive response aimed at safeguarding the security of MOL's vessels amidst escalating security threats in the region. As of May 2023, MOL holds the distinction of having the world's third-largest shipping fleet, trailing behind China's Cosco and Japan's NYK Line. Notably, MOL boasts the largest LNG fleet, second-largest car carriers, fourth-largest dry bulkers, and the fifth-largest tankers globally.

While MOL's scheduled ship entries into the Red Sea have been curtailed to "a few vessels," the company has not divulged specific details about alternative routes that some of its ships may take. This move aligns with a broader trend, as major shipping companies increasingly suspend transit through the Red Sea, responding to a deteriorating security situation off Yemen. The escalation in security threats follows US-led strikes on Houthi rebels in Yemen on January 11.

Joining MOL in this cautious approach, NYK, another major player in the shipping industry, is contemplating potential actions such as "halting or changing routes" for its operated ships due to the heightened risk associated with Red Sea navigation following recent air strikes. NYK had already initiated discussions about bypassing the Red Sea following the seizure of its chartered car carrier Galaxy Leader near Hodeidah, Yemen, on November 19.

The decisions by MOL and NYK are particularly noteworthy given their global shipping prominence and the diversity of shipping routes in their fleets compared to container shipping companies that typically operate on fixed routes.

The impact of the conflict in the Gulf of Aden is reverberating across the shipping market, influencing the Persian Gulf as well. Some charterers are anticipating a two-tier market scenario, predicting that westbound voyages, such as those from the Persian Gulf to Europe that involve Red Sea transits, may become more expensive. Conversely, voyages to North Asia could face downward pressure. This forecast is based on the expectation of more ships available for eastbound voyages and fewer for westbound ones, as the return journey from Europe and America takes longer after delivering cargoes.

In the context of refined products, naphtha emerges as a key commodity in terms of volume moving on the Middle East-Far East routes. Japan and South Korea, as the largest importers, play a crucial role in this movement. Additionally, gasoil and jet fuel typically move from the Middle East to Europe. However, there is no unanimous agreement among owners regarding the potential market dynamics, and charterers seem keen to secure tankers promptly to preclude a surge in freight rates, while owners are adopting a more cautious approach.

As of January 15, freight rates on most routes remained unchanged, with market participants adopting a "wait and watch approach" in response to the evolving situation in the Red Sea. The conflict's impact on shipping routes and freight rates is a dynamic situation that will continue to unfold, influencing the broader maritime industry.