Japan's NYK halts Red Sea transit, cancels Yanbu crude lifting; freight to soar

In a move that will jack up global freight, Japan's NYK Line, among the world's largest ship operators, halted the passage of all of its operated ships through the Red Sea - even canceling an immediate VLCC cargo lifting - amid increased security concerns in the wake of recent air strikes, a NYK spokesperson told S&P Global Commodity Insights Jan. 17.

With several shipping majors, halting transit through the Red Sea, a key commercial maritime waterway, the time duration of voyages will become longer, the supply of ships will tighten and freight will jump higher, market participants said.

NYK joins a growing number of major shipping companies that have suspended transit via the Red Sea, as the security situation off Yemen deteriorates following US-led strikes on Yemen's Houthi rebels on the evening of Jan. 11.

The move came as the NYK spokesperson said Jan. 15 that the company was considering "halting or changing routes" for its operated ships near the Red Sea as "the Red Sea navigation risk has significantly increased following the [recent] air strike."

NYK previously initiated discussions with its ship and cargo owners to bypass the Red Sea following the Nov. 19 seizure of its chartered car carrier the Galaxy Leader near Hodeidah, Yemen.

The NYK Group controls one of the world's largest shipping fleets comprising 818 ships, including 356 bulk carriers -- Handysize, Panamax and Capesize -- 120 car carriers, 86 LNG carriers, 69 tankers and 53 container ships, according to the company data for the financial year ended September 2023.

Yanbu lifting

As part of its halted passage at the Red Sea, NYK has canceled the voyage of the VLCC Tosa to Yanbu to lift Saudi Arabian crude oil for Taiyo Oil, the NYK spokesperson told S&P Global separately Jan. 17.

The Tosa, which was estimated to arrive at Yanbu Jan. 27, was sailing offshore southeast Sri Lanka at a speed of 1.9 knots, according to S&P Global Commodities at Sea at 0804 GMT Jan. 17.

Taiyo Oil typically loads Arab Super Light crude from Yanbu and the Japanese refiner is the only buyer of the Saudi grade in Asia, a trading source at the company told S&P Global.

When asked about potential alternative crude grades that could replace Arab Super Light, the trader at Taiyo Oil declined to comment.

However, regional sweet crude traders indicated that Taiyo Oil could look for Malaysian grades, such as Kimanis, as the 138,000 b/d Kikuma refinery in western Japan is designed primarily to process very light or low sulfur grades.

Meanwhile, Asian sour crude traders said any further disruption to Saudi Super Light crude flows in the Red Sea could slightly impact the next round of Saudi Aramco official selling prices for the light sour grade and even other medium and heavy grades.

Earlier this month, Saudi Aramco cut the official selling price differential for Arab Super Light crude bound for Asia in February to a premium of $2.95/b to the Platts Dubai/Oman average benchmark, down $2/b from the January price differential.

Costlier route

As a direct result of the latest developments, the option for moving cargoes to Europe from the Persian Gulf via the Cape of Good Hope is now being "actually exercised", shipping executives said.

For the last several weeks, this option was there in the charter party agreements, but rarely utilized due to the costs involved, including higher bunker consumption and hefty freight premia, they said.

A chartering source in Seoul said that now longer voyages for oil tankers via Cape will become a "regular feature".

Dozens of tankers have already been diverted since the US and UK led Combined Maritime Forces, or CMF naval coalition of 39 countries launched counter-strikes against the Houthi rebels in Yemen late last week, prompting commercial maritime associations such as Bimco and Intertanko to advise their members to keep commercial ships away from the theater of conflict.

"Now every tanker will go via Cape [to Europe]. It will be the only routing for now," a Dubai-based senior executive of a major oil tankers' company said.

The Long Range II, or LR2, tankers that carry up to 90,000 mt of refined oil products, are currently commanding a premium of a whopping $900,000 for a voyage via Cape on the Persian Gulf-Europe routes, over the earlier more common transit via the Suez Canal, brokers in Tokyo and Singapore said.

At current freight levels, it translates into 20% extra cost for charterers, just on the basis of route taken alone, they said.