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            march 25, 2019

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Cape route opens up to cut costs


Container lines are taking advantage of the industry's overcapacity and cheap bunker to use the Cape of Good Hope route to avoid costly Panama and Suez canal charges, reports SeaIntel.
Now used on the backhaul, SeaIntel analysis shows that switching to the Cape route on the headhaul "is going to look alluring for some carriers" given their current financial situation with Suez Canal fees running at US$730,000 per voyage.
"In what seems to be a major deployment change, carriers have started re-routing the backhaul legs of most Asia to US east coast services south of Africa, as opposed to using either the Panama or Suez canals," SeaIntel said.
Among the Asia-North Europe services, the NE5 and NC6 operated by the CKYHE alliance and the FAL8/AEX1/AEC1 operated by the Ocean Three alliance recently used the Cape route on the backhaul, reported Lloyd's Loading List.
"While a major blow to the two canals, the economics behind this model is quite sound," SeaIntel said.
SeaIntel said that the drop in the number of containerships transiting the Suez Canal in 2015 can be partially attributed to carriers sailing south of Africa on the backhaul.
The number of laden containerships passing through Suez in 2015 dropped 2.8 per cent from the previous year to 5,894.
SeaIntel said 14 USEC-Asia services stand to save money by using the Cape route while retaining current schedule integrity. Of the 14, eight currently sail through the Panama Canal and six through the Suez Canal on the headhaul.
The cost reduction will amount to $19 million per service annually assuming that these Suez services sail 50 out of the 52 weeks of a year, said SeaIntel, adding that the cost reduction would come to $19 million a year per service.
While the longer Cape route backhaul will incur an average $328,000 in costs it is still cheaper than the average Suez Canal bill.
"Not only would the carriers save - even on the headhaul - slowing down the services by a week in each direction would soak up a potential 60-80 vessels, of which half would be mega-vessels," SeaIntel said.
SeaIntel added that if the longer-term bunker prices are expected to remain low, carriers may adopt the route change even on the headhaul, keeping fuel consumption and service speeds low by adding one to two weeks to the round trip.

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