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Commercial Newsletter
Volume 13 Issue 1 Feb 2024
Minimizing Delays and Cost due to the Red Sea Conflict
Benjamin Bacon, Assistant Operations Manager

There is no other region within the shipping world under more tension and stress than the Red and Eastern Mediterranean Seas. Unfortunately, within this area lies one of the most transited shipping lanes in the world: the Suez Canal. The costs to transit through the Canal are growing (due to increasing tolls and guard costs passing through the Red Sea and Gulf of Aden), and the increasing security threat of hostile entities in the region have yielded some insecurities for vessels transiting these waters. Will it be more cost efficient and ultimately safer to take a longer route around Cape of Good Hope and South Africa?

Below, we investigate the costs between the two primary routing options connecting the Atlantic and Indian Oceans/Far East (via the Mediterranean and Red Seas versus routing around Cape of Good Hope). Immediately, we begin to see differences in cost due to several additional expenses associated with transiting via Suez Canal, the primary being the cost to transit the Canal itself. Depending on vessel size, in 2023, the total average cost to transit the Canal is approximately USD $400,000-$600,000. These tolls have increased on January 15th, 2024; 15% tankers and larger vessels, with a 5% increase for smaller bulkers.

We investigate four common transits transiting east of Suez Canal westbound for the United States Gulf Coast (basis Houston):

*East Coast India (basis Paradip) – US Gulf Coast (basis Houston) via Suez Canal (11,428nm) and via Cape of Good Hope (12,891nm):

*West Coast India (basis Mumbai) – US Gulf Coast (basis Houston) via Suez Canal (9,903nm) and via Cape of Good Hope (12,167nm):

*Persian Gulf (basis Mina Saqr) – US Gulf Coast (basis Houston) via Suez Canal (9,730nm) and via Cape of Good Hope (12,397nm):

*Singapore – US Gulf Coast (basis Houston) via Suez Canal (11,949nm) and via Cape of Good Hope (13,339nm):

* Costs calculated assuming Panamax vessel travelling at a speed of 12.0kts, consumptions of 23.0 MT FO/day (assuming average LSFO price at Fujairah over the last 6 months USD $634.50/MT), and 0.1 MT DO/day (average price USD $926.50/MT), and hire rate approximately USD $18,000/day. For Suez specific routes, we also include the cost to transit Suez Canal (basis an average toll USD $632,500), costs for embarking/disembarking armed security team to transit through the HRA (approximately USD $15,000).

Basis the above calculations, it is becoming evident that transiting via Cape of Good Hope can be a more cost-efficient routing option, as the addition of the tolls and guard costs significantly outweigh the costs associated with the additional steaming days.

There are also several interesting trends that we notice. The cost difference for shorter transits (from West Coast India and Persian Gulf) tends to be less, as the vessel typically needs to transit a greater distance away from the Canal. In the case of longer transits (i.e. East Coast India and Singapore), it becomes easier to route a vessel around either option, with less distance needing to be added. We also note that it typically costs more to transit via Suez Canal during the Northern Hemisphere winter, as this typically presents slower average vessel speeds due to heavier weather across the North Atlantic. Similarly, routing around South Africa during Northern Hemisphere summer would likely result in delays due to slower speeds, as the gale pattern around South Africa tends to be worse during these months.

Please keep in mind that the above calculations are very rough approximations and are meant only to be viewed as part of the larger routing trends. Exact differences between the two routing options are highly dependent on the exact toll of routing through Suez Canal and guard costs through the Gulf of Aden/Red Sea, and the exact bunker consumption of the vessel. Furthermore, the winter Gale pattern around Cape of Good Hope can always yield more impacts to the vessel speed and costs than originally calculated.

As such, WRI can provide optimization calculations basis the vessel’s specific type and bunker consumption, along with specific fuel and hire costs. We can then decide and advise on a per-transit basis the safest, most cost-efficient routing options for your upcoming voyages.

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