Low impact on M’sia from Red Sea crisis

Maybank IB said the crisis will have little impact on MISC because of its conservative business model with a focus on long-term charters.

PETALING JAYA: The ongoing Red Sea crisis is expected to have minimal impact on Malaysia compared to countries in Europe, as they tend to rely heavily on Asian exports, thus bearing the brunt of the shipping costs.

Maybank Investment Bank Bhd (Maybank IB) said local exporters here are likely to face lesser disruption, with moderate freight cost increases.

“While there has been a moderate increase in freight costs, it has not reached disruptive levels that would significantly impact local export volumes. Freight rates remain much lower compared to pre-pandemic levels,” it said in a report.

The research house said, however, some importers within the chemicals, machinery and automotive industries may face supply chain delays which will affect production timelines.

“However, there is no expectation of significant increases in freight rates for these routes due to their backhaul nature, except for luxury items like wine and gourmet food, which may be subjected to higher container freight rate,” Maybank IB said.

Overall, the disruption was seen as generally positive for shipping companies.

Maybank IB said within the sector, it will maintain its earning forecasts and “buy” calls for both MISC Bhd and Westports Holdings Bhd.

It added that the crisis will have little impact on MISC because of its conservative business model with a focus on long-term charters.

“Approximately 80% to 85% of MISC’s petroleum tankers and nearly 100% of its liquefied natural gas tankers are chartered long term.

“Unlike the containership market, tanker freight rates have seen limited impact due to smaller changes in Red Sea traffic thus far,” it noted.

For Westports, minimal traffic slowdown was recorded in the first half of January 2024 but normalised after, as shippers adapted to the longer transit routes.

“Additionally, Westports is well-prepared for potential disruptions, having enhanced its operational efficiency and fortified its business contingency plans since the pandemic,” the research house said.

Meanwhile, Maybank IB said global container freight rates, particularly in the Far East to Europe trade lanes, are expected to remain elevated until the end of 2024 if the conflict persists.

“However, intra-Asia freight rates have remained stable, with minor corrections observed since 2023, indicating resilience in the regional market,” it said.

The research house said some of the factors that influence freight rates include the easing of blank sailings.

“Stronger charter rates are expected to increase the operating costs of the carriers.

“The increase in rates is primarily attributed to voyage time and operating costs rather than capacity constraints, suggesting a fair balance in current rates.”

It also elaborated that the six main global impacts of the crisis are the doubling of voyage time, higher operational costs, increased freight and charter rates, higher carbon emissions and a strategic shift to land-based logistics.

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