Shipping giant Maersk drops 17% in a day as U.S. works to make routes ‘safe’

Perhaps surprisingly given the increasingly tense situation in the Middle East and the exposed position of the Red Sea – a critical shipping route and southern approach to the Suez Canal – the stock of the world’s largest publicly-traded shipping company, Maersk CPH: MAERSK-B), has managed to stay relatively strong for months since the crisis escalated.

Things took a sharp turn for the worse on February 8 when the Danish company highlighted its outlook for 2024 as ‘highly uncertain,’ reported approximately $300 million less in profits than was expected – $839 million instead of $1.13 billion – and canceled its stock buyback plan. 

The stock market’s reaction was swift and violent, and Maersk’s shares dropped 17.02% in a single trading session. At press time, the shipping stock stands at 10,675 DKK – $1,540.36.

Why is 2024 so uncertain for the shipping industry?

While the Middle East can hardly be described as quiet at any point since the start of the 21st century – and particularly following the October 7 Hamas attack on Israel – things came to a head for the shipping industry in November 2023.

Near the middle of the month, the Ansar Allah movement – commonly referred to as the Houthis – a Yemeni Iran-backed political organization designated as a terrorist entity by the United States, started firing rockets and other ordinance at ships attempting to pass through the Red Sea with a particular focus on those headed for Israel.

The stated goal of the blockade is to put pressure on the Israeli government to end its bombardment of the Gaza Strip – a bombardment which carries the danger of turning into a full-blown genocide, according to the International Court of Justice decision in South Africa’s lawsuit against Israel.

The attacks had a profound impact on the global shipping industry, with many major companies rerouting their vessels around the Horn of Africa – a far longer and far older shipping lane – and the U.S.-led intervention in the region has, by press time, only made matters worse. 

Red Sea blockade impact on the shipping industry

While it is difficult to precisely quantify the costs incurred on the global economy by the Red Sea blockade, its impact is both broad and significant, given that the crucial trade route usually accounts for about 12% of global shipping.

Given that transit through the Suez Canal shortens the route to Europe by approximately 5,500 miles (8,900 km), endangering the lane incurred significant costs in fuel alone. In addition to that, the new dangers to the ships drove up insurance prices and caused significant delays.

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