(Jan 16): Shares of Asian shipping companies fell Thursday on expectations that a ceasefire deal between Israel and Hamas will normalise shipping in the Red Sea, cooling elevated container freight rates and weighing on profits.

Japanese marine cargo firm Kawasaki Kisen Kaisha saw its stock drop as much as 3.2% to its lowest intraday price since Nov 28, with fellow shippers Mitsui OSK Lines and Nippon Yusen also falling over 2%. Hong Kong-listed shares of Chinese carrier Cosco Shipping Holdings slid as much as 1.9%.

Israel and Hamas agreed to temporarily halt fighting in the Gaza Strip, starting Sunday, in a deal reached Wednesday. Throughout the war, which began in October 2023, many container ships have avoided routes through the Red Sea and Suez Canal due to safety risks. That’s squeezed global shipping capacity, lifting freight rates and boosting the earnings of carriers like Mitsui OSK.

If the Israel-Hamas war ends, vessels will likely return to Red Sea transits, driving down freight rates and weighing on the earnings outlook for marine cargo firms, wrote Bloomberg Intelligence analysts Kenneth Loh and Lindsay Chen in a note.

“Close to 90% of containers ships still divert around Africa,” they wrote, “but the ceasefire could raise expectations for safe passage.”

Shares of South Korean shipper Pan Ocean Co also fell Thursday, although its decline was limited due to support from a weak won against the dollar, as the Korean currency hovered near its lowest level since 2009.

Asian shipping shares have previously risen in response to escalations in the Israel-Hamas conflict. In April, they climbed after Israel launched a retaliatory strike on Iran.

The Shanghai Shipping Exchange’s index of freight rates, which tracks container spot rates for cargo leaving China, fell 8.6% last week, the most since September. The index had risen over 150% since the start of the Israel-Hamas war.

Shipping costs may fall by as much as a third if Red Sea transits return to normal, wrote Capital Economics economists including David Oxley in a Jan 15 report.

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