Low Bunker Prices Mean Avoiding Panama and Suez Canals Could Save Liners Money, Say Analysts

Monday March 7, 2016

Seaintel ApS (SeaIntel) and other analysts are suggesting that bunker prices have fallen low enough to make it more cost effective to reroute a number of Asia-U.S. East Coast (USEC) and Asia-North Europe services around south of Africa, avoiding the Panama and Suez Canals.

It is reported that falling bunker prices have enabled vessels to save an average of $235,000 per voyage by diverting around Africa and avoiding the tariffs of Suez Canal, with potential savings of $17.7 million per service annually by adding the extra week onto Asia-North Europe headhaul transit times.

Further, SeaIntel estimates that if vessels speed up and add three and a half day sailing time to their headhaul transit times around Africa, carriers could save $12.6 million per year per service in addition to backhaul savings.

"If the canals want to change the economics of the routing choices, the Panama Canal would need to cut prices by roughly 30 percent, while the Suez Canal would need a cut of roughly 50 percent," SeaIntel's is reported to have said.

Reports suggest that, instead of using the canals, 115 merchant vessels on Asia-USEC and Asia-North Europe services were diverted through Cape of Good Hope upon return to Asia since the end of October. 

It has been noted that SeaIntel's analysis did not take business lost as a result of longer transit times into consideration, but did highlight that carriers would need to deploy an extra ship to fill the gap in service.

SeaIntel reports only a 0.9 percent fall in container vessels transiting the Suez Canal due to backhaul reroutings, adding that, unless carriers reroute their headhauls from Asia or backhaul rerouting becomes more popular among carriers, the Suez Canal is said to be expected to overcome challenges posed by the diversions.

In July, analysis from Argus questioned whether the Suez Canal expansion was capable of better accommodating the traffic rise seen since 2011 and encouraging further traffic to utilise the canal.