Maersk reroutes freight operations away from Red Sea

Danish freight operator Maersk (AMKBY) will be rerouting all of its shipping vessels away from the Red Sea as attacks from Yemeni Houthi forces escalate.

Yahoo Finance Senior Reporter Ines Ferré breaks down the disruption risks similar diversions pose for global supply chains and freight deliveries.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

RACHELLE AKUFFO: Maersk is warning customers of major disruptions after diverting all vessels from the Red Sea for the foreseeable future. Just last weekend, a vessel from the Denmark-based shipping company was attacked. It then was then rerouted all ships around Africa. So what does this mean for shipping stocks?

"Yahoo Finance's" very own Ines Ferre here to break it all down for us. Hey, Ines.

INES FERRE: Hey, Rachelle. And shipping stocks have been on the uptrend since mid-December, when we started to hear about these attacks on vessels. And when shipping companies started to temporarily divert their ships or temporarily not use the Red Sea. This is because of Houthi rebel attacks against vessels.

And we just want to throw up a map for you so you can see what we're talking about. Well, we're talking about the Red Sea. It's the body of water that connects to the Suez Canal. That's the shortest waterway between Asia and Europe. And shipping cargo companies use this body of water to transport everything from wheat to crude.

So Maersk, as you were just mentioning, has said, that it will for the foreseeable future until further notice. Stop using that waterway. And this is significant. There are analysts at Goldman Sachs this week and also Bank of America. Upgraded Maersk to neutral from sell, increasing their price target on the stock because what they're saying is that you've got now about 70% to 80% of vessels that are rerouting as of mid-December.

It's making their journey 30% longer. And the freight costs are going through the roof. In fact, the Northern Europe from Asia to Northern Europe, those costs have gone up by 173%. Of course, you also have insurance costs that have gone up too. But for the bottom line for these shipping companies, well, higher freight costs is beneficial to their bottom line, and limited capacity is, of course, is sending those freight costs higher.

RACHELLE AKUFFO: Indeed. That's a significantly longer route, if they're not able to pass through the Red Sea. Appreciate you as always. "Yahoo Finance's" own, Ines Ferre. Thanks so much.