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Carriers opt for Cape route as cheaper oil and recession bites

CARRIERS are re-discovering the old Cape of Good Hope route in an age of low oil prices and increasingly costly Suez Canal fees, says Lars Jensen, CEO, of Copenhagen-based SeaIntelligence Consulting, reports American Journal of Transportation

25 May 2020 - 19:00

CARRIERS are re-discovering the old Cape of Good Hope route in an age of low oil prices and increasingly costly Suez Canal fees, says Lars Jensen, CEO, of Copenhagen-based SeaIntelligence Consulting, reports American Journal of Transportation.

As a result of lower fuel costs, some carriers sailing between Asia and Northern Europe are sailing around the Southern coast of Africa to avoid paying US$500,000 to $750,000 in fees to transit the Suez Canal.



'In an echo of 2016, we are seeing the impact of lower oil prices and one of the impacts had been on some carriers going between Asia and Northern Europe bypassing the Suez Canal.'



The passage around Africa is cheaper with the lower fuel costs to sail to Northern Europe from Asia even though the distance is greater and the fuel consumption is higher. The lower oil prices now make this voyage more economical.



'Because of the recession, importers can afford an additional week in sailing time because the demand is not high enough to pay for faster deliveries.'



The Suez Canal authority has offered a five per cent discount on ships transiting between Asia and northern Europe, he says but that may not be enough: 'as we see more carriers are opting to take the African route.'



Said Mr Jensen: 'The Suez Canal Authorities now trying to strike back against the competition from low oil prices.



'In a circular issued earlier they are increasing their discount scheme clearly aimed at trying to prevent more container vessels from taking the long route around Africa.'



For North Europe to Asia they now offer a rebate of 17 per cent compared to the normal tolls, though not for certain surcharges. This is an increase from the previously offered discount of six per cent instituted from April 1.



For East Coast North America to Asia, the rebates have been increased to the range of 60-75 per cent depending on the specific origin and destination. This is an increase from the rebate already in place, which was in the range of 45-65 per cent.



The new discounts are in effect from May 1 to June 30. Presently at least eight vessels operated by the Ocean Alliance and the 2M Alliance either have, or are scheduled to, bypass the Suez Canal and take advantage of the low oil prices versus the canal tolls.


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