Shipping ETFs extend rally as ocean carriers remain on edge amid Houthi militant attacks in Red Sea

By Isabel Wang

Major container shippers reroute their tankers to avoid sailing through the Red Sea

Exchange-traded funds that track U.S. shipping stocks continued to surge on Tuesday after the world's major container shippers rerouted their tankers to avoid sailing through the Red Sea following attacks by Yemen's Iran-backed Houthi militants, as violence linked to the Israel-Hamas conflict prompted another spike in oil prices and in the cost of shipping.

Shares of SonicShares Global Shipping ETF BOAT, which tracks global companies engaged in the maritime transportation of goods and raw materials, rose 0.9% on Tuesday, while the U.S. Global Sea to Sky Cargo ETF SEA advanced 1.2%, according to FactSet data. For the week, both funds have jumped around 5% to take their month-to-date rally to 8.4%, according to FactSet data.

The Breakwave Dry Bulk Shipping ETF BDRY, which tracks the daily price movements of the near-dated dry bulk freight futures, slumped 7.7% on Tuesday, but the fund has still booked a 4.8% advance so far in December, according to FactSet data. Dry bulk carriers transport unpackaged dry cargo, such as iron ore, coal and grain, a type of transport distinct from tankers and containerized cargo ships.

What's happening: Attacks in the Red Sea add to global shipping woes

Last week, many of the world's biggest shipping lines, oil producers and cargo carriers started pulling their vessels out of the Red Sea and diverting them from the region after Iranian-backed Houthi rebels in Yemen launched missiles and hit three commercial ships in early December. Those attacks came two months after Hamas launched surprise cross-border raids on Israel from Gaza.

On Monday, energy giant BP PLC (BP) said it will pause all shipments of oil through the Suez Canal and reroute carriers around South Africa's Cape of Good Hope. That announcement came after shipping giants AP Moller-Maersk A/S (AMKBY) and Hapag-Lloyd AG (HPGLY) and tanker group Frontline (FRO) all said they were suspending shipping through the Red Sea last week.

"Nearly 15% of the world's shipping traffic has been disrupted by shipping companies avoiding the Suez Canal route due to increased risk in the Red Sea," StoneX's Kansas City energy team, led by Alex Hodes, said in a Tuesday client note.

American depositary shares of the world's largest shipping group, Maersk, have jumped 9.2% so far in December, but the shares were paring some of those gains this week following a surge of more than 7% on Friday. The U.S.-listed ZIM Integrated Shipping Services Ltd. (ZIM) finished 1.2% lower on Tuesday, but the stock has rallied 37.9% this month, according to FactSet data.

See: Deutsche Bank warned months ago that shipping was one of the economy's weakest links. Here's their must-see chart.

The Suez Canal is one of the most important routes for shipping oil from the Persian Gulf to the Mediterranean, as well as for the pipeline heading toward Asia. It typically accounts for 4% of the world's traded crude oil, 9% of the trade in petroleum products and 8% of global LNG exports, said Caroline Bain, chief commodities economist at Capital Economics.

But oil and related products still only account for about 25% of total materials transported via the Suez Canal, Bain wrote in a Tuesday client note.

Oil prices stabilized on Tuesday in response to the diminishing risks for oil shipments. West Texas Intermediate crude for January delivery (CLF24) gained 97 cents, or 1.3%, to settle at $73.44 a barrel on the New York Mercantile Exchange Tuesday, while February Brent crude (BRNG24), the global benchmark, rose $1.28, or 1.6%, to $79.23 a barrel on ICE Futures Europe, according to FactSet data.

However, commodities prices may still have a knee-jerk reaction if there are new risks to supply, because the route around the Cape of Good Hope adds at least 10 days to the journey and "significantly" raises shipping costs, Bain said. But the production of commodities will be unaffected, so the transport issues should not prompt a commodities price rally, she added.

See: U.S. launches naval coalition to halt Houthi attacks on Red Sea shipping

U.S. stocks finished higher on Tuesday, with the Dow Jones Industrial Average DJIA up over 250 points, or 0.7%, to book its 5th consecutive record close, while the S&P 500 SPX ended 0.6% higher and the Nasdaq Composite COMP advanced 0.7%, according to FactSet data.

-Isabel Wang

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12-19-23 1627ET

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