Shippers stressing over risks from Suez Canal and Red Sea transits
The return of Asia-Europe container shipping services to routing via the Red Sea and Suez Canal continues, despite the deteriorating security situation due to the escalating Houthi-Saudi conflict.
While commercial shipping's close proximity to an active war zone may raise eyebrows, the signs are that most carriers will take the opportunity to traverse Suez while they can.
Even an attack on CU Lines' 2,400 teu CUL Klang last week was not enough to deter other carriers. The vessel was reported to have come under small arms fire in the southern area of the Red Sea.
"Drewry is not privy to carriers' internal risk assessments, but irrespective of our own reservations about the ongoing security risk, we cannot deny the evidence that lines are returning to Suez ahead of our projected timeline," writes Drewry's head of container research Simon Heaney in a new analysis.
"As such, we have adjusted our base case assumptions to a phase-back of Suez transits starting July/August, reaching 80% of pre-diversion level by February 2027.
"We believe it will stay at that level through the forecast horizon, as carriers will want to retain optionality for network resilience purposes," he adds.
However, he also notes that the cost implications for routing a vessel via Suez, compared with diverting round the Cape of Good Hope, may not be as wide as many think, despite the shorter two-week transit time and reduced fuel spend.
"Drewry's slot cost comparison shows only a marginal economic benefit to using Suez, with a saving of approximately $1m per round-voyage, or $43 per slot, when comparing two services deploying ships of 24,000 teu that use either Suez or the Cape in both directions.
"However, our calculations do not factor-in war-risk premiums, as this information is not readily available, nor the fact that the Suez Canal is known to commonly offer discounts to carriers to tempt them back.
"Both line items are highly dynamic; war-risk insurance is often negotiated voyage by voyage, while any canal discounts are discretionary," he adds.
This can cause particular problems for shippers, however, according to Antonis Rigalos, managing partner at ShiftX, a network of shippers that jointly negotiate with carriers on long-term contracts. He claimed that some routing decisions were taken on an ad hoc basis that could leave shippers exposed in terms of insurance cover
"A couple of these carriers are doing ad hoc routings via Suez, and that creates a little bit of stress for shippers because some of the insurers don't have Suez coverage, and they have to apply for that," he told last week's Asia-Europe webinar produced by the Journal of Commerce.
"So if the routing is set for Cape of Good Hope and suddenly the carrier decides to go via Suez, that insurance needs to be obtained on a short notice, and that creates stress for BCOs.
"It needs to be plannable; it needs to be safe and consistent," he added.
He noted that some services, such as CMA CGM's Japan-North Europe OCR string, was "clearly advertised" as a transSuez service.
"It is clearly advertised with a fast transit time to Europe - 30 days transit time that can be chosen by shippers."
According to Mr Heaney, if the war-risk premium charged by insurers to a carrier was 0.3% of the hull value of a 24,00 teu boxship with a newbuild price of $225m, that would lead to an extra 1.35m in insurance premiums for a round-trip voyage.
"That on its own would tip the economic advantage over to the Cape routing, just," he adds.
Of course, carriers have also begun to introduce Suez Canal and Red Sea surcharges to cover that cost - at the end of September, MSC announced it was extending its Piracy Risk and Suez Canal surcharges through October, which amount to $91 per teu ($55 per teu piracy risk and $36 per teu Suez Canal), meaning a full loaded 24,000 teu ship could, theoretically, pay $2.18m in surcharges.
"It should be noted that insurers are known to offer rebates of around 50% for voyages that are safely completed with no incident, further muddying the calculations," Mr Heaney adds.
However, Mr Rigalos also said that reports from ShiftX's BCO members were that current extra insurance costs for transSuez shipments for shippers had yet to become overly onerous.
"I think it's manageable. What I understood from the BCOs is that it's not a big impact so far.
"They only need to have that insurance in case something happens due to the Houthis and so on - it is important that cargo is insured, but the costs are manageable," he said.
