Houthi gains deepen risk as carriers restore Red Sea services

Container lines are restoring more Suez Canal and southern Red Sea capacity despite a widening Houthi threat on the Suez Canal route, a shift that is helping bring down Asia-Europe spot rates but leaves carriers and cargo owners exposed to renewed disruption.

The Iran-backed Houthis movement recently seized a strategic port and island directly on the Bab el-Mandeb Strait at the south end of the Red Sea, analyst and SONAR data provider Freightos (NASDAQ: CRGO) said in a research note.

The territorial advance followed an attack last week on a key Saudi oil pipeline, adding to concerns that regional escalation could place additional pressure on oil and marine-fuel markets. The Yemen-based terrorist militia had already demonstrated an ability to attack or deter merchant vessels in the Red Sea before gaining control of coastal territory.

But the latest advance consolidates its position near one of the world’s most important maritime chokepoints, linking the Red Sea with the Gulf of Aden and serving as the southern approach to the Suez Canal.

The development comes as some observers warn that measures used to blunt energy-price shocks earlier in the conflict — particularly releases from strategic reserves — may be losing effectiveness. Oil and bunker fuel prices have climbed back toward May levels, raising the prospect that a further disruption could translate into a more acute fuel-market crisis.

Red Sea capacity returns Despite some shipper pushback and the heightened security threat, carriers are increasing transits through the Red Sea and Suez Canal, particularly on Asia-Mediterranean services. Sea Intelligence estimates that more than one-quarter of Asia-Europe capacity will transit the Red Sea in September.

The return is most pronounced on the Asia-Mediterranean trade, where roughly 35% of headhaul capacity and 50% to 60% of backhaul capacity are expected to move through Suez. The restoration is proceeding more slowly on Asia-North Europe services. About 6% of headhaul capacity and 30% of backhaul capacity had returned to the route, according to the estimates.

The shift is significant because the Suez route shortens voyages relative to diversions around Africa. A faster transit improves effective vessel capacity, reduces the number of ships required to sustain a weekly network and can ease schedule pressure — provided the security situation holds.

Analysts have estimated 2 million container units’ worth of capacity could return to the Mideast trade lane. Asia-Europe spot rates fall The expanding use of the Red Sea route, combined with easing demand after the peak shipping season, appears to be weighing on Asia-Europe container prices.

Asia-North Europe spot prices fell 3% last week to about $4,300 per forty foot equivalent unit (FEU), while Asia-Mediterranean rates dropped 12% to roughly $4,200 per FEU. Daily pricing on both lanes had eased to approximately $3,800 per FEU so far this week. The sharper decline on the Mediterranean trade may reflect its larger Red Sea capacity restoration.

Asia-Mediterranean prices have fallen about $3,000 per FEU from their July peak, compared with a roughly $2,000-per-FEU decrease for Asia-North Europe rates. Still, rate levels remain elevated.

Asia-North Europe pricing is more than 20% above pre-peak-season levels from mid-May, while Asia-Mediterranean prices remain more than 50% higher, according to the data in the market update. That resilience points to persistent operational constraints despite the return of some Suez routings.

Higher war-related fuel costs and congestion at Far East load ports continue to strain schedules, while poor on-time performance and shipment backlogs could remain factors after China’s Golden Week holiday and into October. Congestion at North European hubs may also be influencing carriers’ willingness to return to the Red Sea.

The shorter routing can help lines regain schedule time and deploy their fleets more efficiently, even as terminals and inland networks remain under pressure. Trans-Pacific rates remain firm On the trans-Pacific, spot rates edged higher last week and remain near peak-season levels.

Strong import demand, coupled with congestion in Asia, is continuing to support pricing. But the latest National Retail Federation outlook projects U. S. ocean import arrivals will decline 9% in October from September, followed by another decrease in November, evidence that cargo demand may already be beginning to retreat.

Lower demand alone may not produce a rapid correction in freight rates. Continued port congestion and carrier blank sailings during the holiday period could constrain available capacity enough to keep pricing comparatively high even as volumes soften.

Most carriers do not appear to be preparing broad October general rate increases, though CMA CGM has announced significant peak-season surcharges, particularly on South Asia-to-U. S. trades. Why it matters: Carriers are regaining the shorter Suez route at the same time that the rou