Changing Economics Of Canals: Large Ships Go Around Africa, Bypassing Suez And Panama

Changing Economics Of Canals: Large Ships Go Around Africa, Bypassing Suez And Panama

CORRECTS NAME OF SHIP TO EVER GIVEN, NOT EVER GREEN - In this photo released by the Suez Canal Authority, a boat navigates in front of a cargo ship, Ever Given, Wednesday, March 24, 2021, after it become wedged across Egypt’s Suez Canal and blocked all traffic in the vital waterway. An Egyptian official warned Wednesday it could take at least two days to clear the ship. (Suez Canal Authority via AP)


The news media said it was a new dawn for Panama and global shipping this week at the opening of the Panama Canal expansion, a $5.4 billion effort to increase shipping business on the 102-year-old canal.

The new set of locks now allows ships carrying up to 14,000 containers, known as neo-Panamax ships, to move faster bewteen the Atlantic and Pacific oceans, USAToday reported. U.S. ports have been investing billions of dollars to expand their facilities in a race to accommodate the mega ships.

But low oil prices mean tankers and cargo ships traveling between Europe, North America and Asia — especially the biggest ones — are dramatically shifting their routes, bypassing the expensive passage through the Suez and Panama canals in favor of the old-fashioned, pre-canal route around Africa, ViceNews reported.

As many as 115 ships since October chose to bypass Suez and Panama canals on their return trip home, taking the longer route instead around the Cape of Good Hope, according to Sea Intel Maritime Analysis (SeaIntel), which tracks the activities of container ships.

Cheap oil is one way shippers are cutting down on expenses. Bypassing the hefty canal fees is another.

Some analysts say bunker fuel prices have fallen low enough to make it cheaper to reroute a number of Asia-U.S. East Coast (USEC) and Asia-North Europe services around South Africa, avoiding the Panama and Suez Canals, ShipandBunker reported.

Schooners of the 19th century had no choice but go around Africa, negotiating the feared Cape of Storms before the technological marvel of the Suez Canal shortened the trip when it was completed in 1869.

Shippers pay $300,000 to $1 million per vessel to pass through the Suez Canal and up to $300,000 for passage through the Panama Canal, according to Kasper Hansen, a shipping analyst with SeaIntel, ViceNews reported.

The Suez Canal recently underwent an $8.2 billion expansion. Egypt justified the expenditure saying it would more than double annual revenues to $13.5 billion by 2023, TheEconomist reported.

The project expands capacity to 97 ships per day. However the Suez Canal was operating below its capacity of 78 vessels a day before its expansion. It could already handle all but the very biggest oil tankers. The projected growth will require yearly growth of 10 percent, a questionable goal given that in the entire period from 2000 to 2013 world seaborne shipping grew by just 37 percent, according to the U.N. Conference on Trade and Development. A recent forecast from the IMF suggests that from 2006 to 2016 the annual growth rate of growth merchandise trade averaged 3.4 percent.

One Egyptian economist estimates the new canal will generate $200 million a year maximum from the slightly bigger oil tankers. Those who pushed for expansion say the canal will attract more ships because new bypasses permit faster two-way traffic. For ships already saving 10 days at sea by using Suez instead of sailing around Africa, a few hours less transit time through the canal will make little difference, others say.

Most cargo ships bypassing the Suez Canal are doing it on the return trip back to Asia after dropping off their cargo, Vice News reported. They often have less cargo on the return and what they have is less valuable — such as recycled paper or scrap metal. They can go much faster with less weight and don’t lose any time when they add the extra 4,708 nautical miles on the longer route. Depending on the speed of the ship, going around Africa adds several days to as many as 20 more days.

By contrast, ships making the trip to Europe and North America are still going through the canals, since ships often are already cruising at maximum speed to ensure they get their high-value cargo there on time — often cars, computers and clothes — to hundreds and thousands of customers.

“This is not something I’ve ever seen before,” Hansen told ViceNews in a March 22 report. “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.”

Vessels 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 per year by adding the extra week onto Asia-North Europe transit times, ShipandBunker reported.

“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 reported.

For oil tankers, experts are seeing the largest vessels — known as long-range product tankers that can hold 90,000 metric tons — going around Africa, according to ViceNews:

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,” said Michelle Wiese Bockmann, an editor and analyst of the OPIS Tanker Tracker, a price reporting agency.