TYLER DURDEN
One month ago, when it first became apparent that the Red Sea blockage by Iranian proxies would prove to be a prolonged affair, we warned that "Red Sea Blockage Means A New Round Of Surging Cost-Push Inflation", which got confirmation just a few days later when we showed the sudden spike in container shipping rates that used the Suez Canal as a transit choke point.
That, as we strongly suspected, was just the beginning, and according to Bloomberg, a key Clean Tanker rate tracked by the Baltic Exchange, has exploded to almost $100,000 a day on the Red Sea disruptions.
Specifically, the cost of shipping fuel on a route that mostly hauls naphtha from the Middle East to Japan surged (again) on Wednesday, with the daily charter earnings climbing 18% to $98,000/day, the highest since May 2020. Meanwhile, earnings for smaller ships sailing from the Middle East to Japan route rose 22% to $75k/day, also the highest since May 2020.
Paradoxically, the more moderate impact on oil flows reflects the lower physical risk from a Red Sea journey - as many oil tankers are from Russia and the Middle East, both of which are on the Houthi "friendly" list - and a greater cost of delaying the delivery through a longer alternative journey.
The bottom line is that the Red Sea blockage is - despite the best wishes of cecntral bankers everywhere who can't wait to start cutting rates ahead of the record avalanche of elections this year - becoming a huge inflationary headache for global freight. Furthermore, as LoadStar reports, container spot rates from Asia to the US and Europe continued to soar this week as any solution from the toothless (both literally and metaphorically) Biden regime to the attacks on shipping by Houthi rebels looks increasingly unlikely.
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