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Home » Blocked Suez Forces Ships to Look at Long Trip Around Africa

Blocked Suez Forces Ships to Look at Long Trip Around Africa

Suez satellite
Satellite image from Cnes2021, Distribution Airbus DS, shows cargo ship Ever Given stuck in the Suez Canal near Suez, Egypt, Thursday, March 25, 2021.
March 25, 2021
Bloomberg

A massive container ship blocking the Suez Canal showed no signs of budging for a third day, forcing container carriers and other vessels to weigh costly and time-consuming voyages around Africa that threaten to destabilize the already fragile underpinnings of global trade.

Two liquefied natural gas tankers loaded in the U.S. and bound for Asian markets appear to have changed course in the mid-Atlantic and are now heading around Africa to avoid gridlock in the Suez waterway. A.P. Moller-Maersk A/S and Hapag-Lloyd AG are considering sending ships along the same route, moves that would follow a Synergy Marine-managed ship that is being sent around the Cape of Good Hope. Torm A/S, a Danish owner of tankers, said its customers have asked about the cost of options to divert.

The possibility of alternate routes is the starkest example yet of how the canal blockage is starting to ripple across maritime transportation for everything from finished goods to energy and commodities. Even before the 400-meter long Ever Given got blocked on Tuesday, the pandemic sowed havoc in supply chains with shortages and delays.

“Regarding the possible alternatives, we are looking at all of them, including the Cape of Good Hope but also many others, for example air solutions for critical and time-sensitive cargo,” Maersk said in a statement. “No concrete decision has been taken yet. It will depend on how long the Suez Canal remains impassable.”

The logjam threatens to unleash more shipping turmoil that could mean higher costs for container carriers, the importers they cater to and maybe consumers eventually. A particular worry for the broader economic impact of the Suez incident are the supply lifelines for European companies ranging from car manufacturers to retailers that rely on a steady flow of Asian imports.

The U.S. National Security Council is closely monitoring the situation, a spokesperson said Thursday night.

“Even if the situation is resolved within the next 48 hours, port congestion and further delays to an already constrained supply chain is inevitable,” said Daniel Harlid, a Moody’s analyst. That’s bad because European manufacturers including automakers don’t stockpile parts, he said, adding that freight rates “will also most likely increase or at least stop decreasing from their currently very high levels,” he said.

The German container line Hapag-Lloyd said it was closely following “the implications on its services. We are presently looking into possible vessel diversions around Cape of Good Hope.”

For the container lines that haul about 80% of global merchandise trade, a prolonged bottleneck between Europe and Asia risks throwing off ship schedules set months in advance so importers can plan their purchases, manage inventories and keep store shelves stocked or production lines running.

Read more: What’s Backed Up at the Suez Canal?

The problem compounds with every day container ships have to wait. Vessels that arrive several days late can’t be emptied and reloaded in time to make the scheduled return journey. That leads carriers to cancel trips — further constraining capacity and pushing up freight rates.

Geneva-based container giant Mediterranean Shipping Company S.A. said “customers with cargo due to transit the canal in the coming days should be prepared for potential schedule changes and we will communicate with customers as the situation evolves.” France’s CMA CGM SA said it’s not considering rerouting ships “for the time being.”

Work to re-float the Ever Given and allow passage for oceangoing carriers hauling almost $10 billion of oil and consumer goods continued without success on Thursday in Egypt. Tugs and diggers have so far failed to budge the vessel, and some experts say the crisis could drag on for several days — or even weeks. The Suez Canal Authority has temporarily suspended traffic.

Rerouting around South Africa’s Cape of Good Hope would add 6,000 miles to the journey and something like $300,000 in fuel costs for a supertanker delivering Middle East oil to Europe.

Owners of supertankers hauling 2 million-barrel cargoes had been losing money for weeks on the industry’s benchmark trade route — a function of OPEC+ withholding millions of barrels of supply from the global market. On Wednesday, though, the carriers nudged back to profitability. Rates for smaller crude-carrying ships are climbing too, and earnings on oil-product vessels sailing from the Middle East to Europe have also jumped.

Fragile Infrastructure

“The longer this lasts, the more likely that you’ll have that impact,” said Brian Gallagher, head of investor relations at Euronav NV, owner of the world’s third-largest fleet of supertankers. “It’s more a reminder of the fragility of some of the infrastructure that’s out there. That may have a knock-on effect with people taking the view that they’ll take the longer transit for certainty.”

Shipbrokers report that oil traders are increasingly hiring tankers with “just-in-case” options to sail around Africa should the blockage drag on. Vessels sailing empty to collect oil in northwest Europe could get delayed, forcing the region’s exporters to seek alternative carriers, according to people involved in that market.

Rates to charter oil tankers in some regions have climbed higher since the blockage first appeared. Suezmax vessels, which typically haul 1 million barrels through the canal, are now fetching about $17,000 a day, the most since June 2020. If ships are forced to sail around the southern tip of Africa, that will boost rates as journey times increase.

The canal is currently holding up about 2 million barrels a day of oil flows, according to Braemar estimates.

The congestion is also hitting bulk carriers that ship products from wheat to iron ore. There’s a long queue of bulk ships at the moment — just shy of 40 vessels — according to Peter Sand, chief shipping analyst at trade group BIMCO.

“Unless the situation is resolved very quickly we will soon see ships sailing south of Africa,” Sand said. “Oil tanker rates are terribly low at the moment so that’s where there’s most upside. Then some upside for dry bulk.”

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