ANALYSIS: Boxships Avoiding Suez Could Lift Global Bunker Demand 2%

by Jack Jordan, Managing Editor, Ship & Bunker
Monday December 18, 2023

Global bunker demand could be boosted by as much as 2% by the container industry plotting longer voyages to avoid the Red Sea in the wake of recent attacks.

Since Friday leading container lines MSC, AP Moller-Maersk, CMA CGM and Hapag-Lloyd have all said their ships will avoid the Red Sea in response to Houthi attacks on commercial shipping there, making the Suez Canal unusable for these firms.

Between them these companies' fleets represent 54% of global container capacity.

Estimating the Demand Impact

Should the container industry decide en masse to follow these companies' leads, forcing ships into longer voyages around Africa, the decision could result in a noticeable boost to global bunker demand.

A rough calculation would put the average increased voyage length for avoiding Suez at about 3,000 additional nautical miles. About 35.5 million TEU pass through Suez every year; taking 20% off that figure to account for vessels operating only in the northern end of the Red Sea, which remains safe for now, would leave 28.4 million TEU/year of shipments that may need to be rerouted.

Combine those figures with Maersk's average bunker consumption for the first three quarters of 2023 -- 40.13 g per TEU per nautical mile -- and you get an overall increase of 3.42 million mt/year of bunker fuel demand.

Compared to official IMO data for 2021 global demand -- 224.8 million mt -- the increase comes out as 1.5% of the global total in this analysis.

Alternative Analysis

Bunker and shipping industry analysts contacted by Ship & Bunker came to similar conclusions on the demand impact, while applying different methodological approaches.

Peter Sand, chief analyst at Xeneta, suggested the bunker demand increase could be between 1-2%.

"My measurements goes slightly differently around ships' consumption, the number of ships in the services, the number of container ships via Suez etc -- all of that brings me closer to 2 million mt/year," Sand said.

"Adding it all up: between 2 and 3 million mt per annum, or roughly 1% of added global demand."

Robin Meech, managing director of Marine and Energy Consulting, suggested the demand increase could be slightly larger.

Based on 250 vessels, or 1.7 million TEU of capacity, diverting per month, and with an average extra voyage distance of 4,250 nautical miles, global bunker demand could increase by 1.25%, he told Ship & Bunker.

But container lines may need to increase speed to minimise delays, cutting fuel efficiency and raising consumption, he argued.

"Should the vessels increase their speed by, say, 4 knots, that would increase the additional liner diversion consumption to over 2% of global demand," Meech said.

Other Impacts

This analysis is restricted to the impact of only the container segment avoiding Suez, as this has been the segment to respond the most dramatically to the security threat so far.

But other segments may follow the boxships' lead. Tanker firms Maersk Tankers and Euronav have already reportedly instructed that all new charters must come with the option of avoiding the Red Sea where relevant to the voyage.

Should the tanker and dry bulk segments also need to take longer voyages to avoid Suez, this would add significantly to the potential increase in global bunker demand.

Another key aspect of the situation will be the impact on the shipping industry's emissions.

The extra voyage length needed for ships avoiding Suez will both worsen scores under the IMO's Carbon Intensity Indicator regulation, and add the need for purchasing extra EU allowances under the EU Emissions Trading System for shipping from January 1.

How Long Will it Last?

Measuring the impact of the Red Sea situation on bunker demand in tonnes per year is flawed, as it seems highly unlikely that the US and its allies would allow the Suez Canal to be unusable for as long as a year.

The US is already reportedly preparing to announce 'Operation Prosperity Guardian' later this week, after negotiations about the setting up of an international taskforce to improve security in the region. This may involve either naval escorts of commercial ships through the Baab al-Mandab at the entrance to the Red Sea, or strikes on Houthi-controlled territory in Yemen, or both.

It remains to be seen how quickly this operation will be able to restore the container lines' confidence in using the Red Sea and Suez.