Ships Are Bypassing the Suez and Panama Canals Because Oil Is So Cheap

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  1. 88m3

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    BUSINESS

    Ships Are Bypassing the Suez and Panama Canals Because Oil Is So Cheap

    By Michael Casey

    March 22, 2016 | 10:55 am
    Spurred on by rock bottom oil prices, tankers and cargo ships are turning back the clock and taking routes across the globe more akin to schooners of the 19th century than the technological marvels that ply the seas these days.

    The most dramatic shift appears along routes from Europe and North America to Asia, where as many as 115 ships since October chose to bypass the Suez and Panama canals on their return trip home. Instead, they have taken the longer route around the Cape of Good Hope, according to Sea Intel Maritime Analysis (SeaIntel), which tracks the activities of container ships.

    "This is not something I've ever seen before," Kasper Hansen, a shipping analyst with SeaIntel, said.

    "I've also talked to my bosses — they have been in container shipping the last 20-25 years. It's not something they can recall ever happening either," he said of the trend, which was first noticed in October. "It seemed odd but then we looked into it and you could see more and more vessels doing it. We could actually spot some of the vessels doing it as we were looking, so we were very sure it was happening."

    Most cargo ships bypassing the Suez Canal are doing it on the return leg back to Asia, when they have much less cargo and what they have is not so valuable — say recycled paper or scrap metal. So, they can increase their speed to ensure they don't lose any time when they add the extra4,708 nautical miles from taking the longer route — adding several days to as many as 20 more days depending on the speed of the ship.

    In contrast, the journey to North America and Europe is still going through the canals, since ships often are already cruising at maximum speed to ensure they get their high value cargo of computers, clothing, or cars to their hundreds of even thousands of customers on time.

    "If you did it on the way there, the vessels would have to do 25-28 knots which they are simply not capable of doing," Hansen said of the route known as the head haul.

    "If you want to do it on the head haul, you would have to tell your customers that they would have to wait for cargo three, four, five days more which they probably won't be willing to do," he said. "On the way back, you simply speed up the vessel without adding transit time. You of course burn more fuel but, as fuel has become less expensive, it's worth doing."

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    For oil tankers, experts are seeing the largest vessels — known as long-range product tankers, capable of holding 90,000 metric tons — going around Africa. With prices for diesel and jet fuels low, many traders are happy to have the extra time in the hopes that prices will rise again.

    "Traders can use the extra sailing time to organize storage, sell the cargo while it is on the water, or take a futures position in the market," Michelle Wiese Bockmann, an editor and analyst of the OPIS Tanker Tracker, a price reporting agency.

    The trend has resulted in 1 million tons of jet fuel or diesel on 11 Europe-bound tankers taking the longer voyage around the Cape so far in 2016, she said.

    "This month, about 28 percent of tankers laden with jet fuel being imported to Europe are tracked coming around the Cape," Bockmann said. "That's very unusual."

    The driver for this shift is simple economics.

    Since May of last year, the prices of bunker fuel used by ships has dropped in Singapore from $389 per metric ton to prices as low as $147 per metric ton. The lower fuel prices has some shipping companies considering the shift away from the Suez Canal, which Hansen said can save them $300,000-$500,000 per voyage.

    He said shippers pay $300,000-$1 million per vessel to pass through the Suez Canal and up to $300,000 for passage through the Panama Canal.

    Taken on an annual basis, SeaIntel projected that shipping companies could save as much as $20 million annually per service on the return trip. A service is a weekly route provided by a shipping company that makes regular stops and includes from nine to 12 ships.

    Related: Low Oil Prices and the War in Yemen Have Left a Huge Hole in Saudi Arabia's Budget

    The potential of an alternative route — albeit one favored in the 1800s before the canal was built — appears to be unsettling Egyptian authorities.

    The country, already enduring a deepening economic crisis, has been quick to dismiss suggestions that ships were abandoning the Suez Canal. Any drop in traffic would be a concern, since the canal is a key income generator and central to Egyptian President Abdel-Fattah el-Sissi's plans for an economic recovery.

    In a statement on the canal's website, Admiral Mohab Mamish, chairman and managing director of the Suez Canal Authority, suggested a shift away from the canal was little more than unfounded "allegations" and represented less than 1 percent of the ships going through the waterway.

    "The Suez Canal is the main route for world trade, and no other alternative can take its place in the field of maritime transport," Mamish declared, adding that both the numbers of ships and the overall tonnage going through the canal had risen in 2015 compared to 2014 — to 17,483 vessels and 998.7 million tons, or a increase of 2 percent and 3.7 percent respectively.

    The potential economic impact to Egypt and Panama will depend largely on whether oil prices remain low in the future and the biggest shipping companies embrace this new route. Canal authorities could also change their pricing structure, which would make the longer routes less appealing.

    Related: Egypt's Expansion of the Suez Canal Could Ruin the Mediterranean Sea

    Maersk Line, the largest container carrier in the world with a network of 600 ships, has called the longer route "part of our tool box," but also acknowledged it uses it for only one in 25 transits. The company must factor in other things beyond the cost savings of the longer route, Mikkel Linnet, a Maersk Line press officer said, including the inability of calling Mediterranean ports.

    For his part, Hansen insisted this new trend is real and isn't going away.

    "If nothing else changes, I'm fairly sure we will see way more ships doing it this year than last," he said. "Even if oil prices went up to $40 instead of $30, it's still worth doing."

    Ships Are Bypassing the Suez and Panama Canals Because Oil Is So Cheap | VICE News

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