Why Major Shipping Companies Are Choosing the Longer Route Around Africa Instead of the Suez Canal
The shift from the Suez Canal to the longer route around Africa is influenced by complex economic and operational factors. Here, we explore the primary reasons major shipping companies are opting for this alternative via.
Physical Limitations and Operational Costs
The Suez Canal has physical size limitations in terms of the maximum vessel dimensions it can accommodate. As of the current maximum vessel size, the Suez Canal can only handle ships up to 400 meters long, 59 meters wide, and 20 meters draft. Many of the largest container ships, oil tankers, and bulk carriers now exceed these limits and need to choose a different route. This leads to operational challenges and increased fees.
The Suez Canal has a finite capacity for the number of ships it can handle per day. During high traffic periods, congestion can occur, leading to delays. The longest route around Africa, although longer in distance, can sometimes offer a more direct path and reduced congestion, ultimately making it faster and more efficient.
Economic Factors: Suez Canal Fees and Fuel Costs
The Suez Canal charges significant transit fees, which can be a major cost for shipping companies. For example, a large container ship can incur fees ranging from $500,000 to $700,000 for a single passage. In contrast, the additional fuel costs of traveling around the Cape of Good Hope, despite the longer distance, can be lower, particularly when fuel prices are low.
The price of bunker fuel, a critical component of shipping costs, can fluctuate significantly. For instance, the average price of very low sulfur fuel oil (VLSFO) in 2020 dropped to as low as $200 per metric ton due to decreased demand during the COVID-19 pandemic, making the longer route more economical.
Operational Flexibility and Risk Management
Shipping companies often need to adjust their fleet operations to manage capacity and schedules efficiently. Slower steaming, reducing the ships' speed, can save fuel and reduce costs. The longer route around the Cape of Good Hope allows for slower speeds without the strict schedule adherence required for the Suez Canal transit, providing operational flexibility.
Security Risks and Insurance Costs
The route through the Suez Canal requires passing through areas with high piracy risks, particularly around the Gulf of Aden and the Horn of Africa. While piracy levels have decreased in recent years, the presence of pirates still necessitates expensive security measures, such as hiring armed guards or rerouting.
The Cape of Good Hope route, although longer, avoids these high-risk areas. The additional costs associated with piracy insurance and security measures can add tens of thousands of dollars per voyage, which is a significant economic consideration for shipping companies.
Environmental and Regulatory Factors
The introduction of the International Maritime Organization's (IMO) 2020 sulfur cap has impacted fuel costs and availability. Compliance with these regulations can influence route choices. Some ships may prefer routes that allow them to use scrubbers or alternative fuels more effectively, which can be more cost-efficient in the long run.
Data and Statistics
Transit Fees: Suez Canal charges can range from $500,000 to $700,000 for a large container ship.
Fuel Costs: VLSFO prices dropped to as low as $200 per metric ton in 2020 from over $700 per metric ton in 2019.
Additional Distance: Routing around the Cape of Good Hope adds approximately 3000 to 5000 nautical miles to the journey, depending on the starting and ending points.
Piracy Insurance: Costs for piracy insurance and security measures can add tens of thousands of dollars per voyage through high-risk areas.
In summary, the decision to take the longer route around the Cape of Good Hope instead of the Suez Canal is a strategic choice influenced by a combination of economic, operational, and security considerations. Shipping companies are increasingly opting for the longer route to optimize costs, manage risks, and ensure reliable operations.