Why Major Shipping Companies Opt for the Longer Route around the Cape of Good Hope
Major shipping companies have increasingly chosen to navigate around the Cape of Good Hope instead of passing through the Suez Canal. This decision is driven by a complex interplay of economic, operational, and security factors. Let's delve into the key reasons behind this trend.
1. Suez Canal Fees
The Suez Canal imposes substantial transit fees that can significantly impact a company's bottom line. For a large container ship, these fees can range from $500,000 to $700,000 per passage. In contrast, while the additional fuel costs for the longer route around the Cape of Good Hope are greater due to the increased distance, they can sometimes be lower, especially when fuel prices are favorable.
2. Fuel Costs and Bunker Prices
The price of bunker fuel plays a crucial role in this decision. When bunker prices are low, the long journey's extra fuel costs can be less than the Suez Canal fees. For instance, in 2020, the average price of Very Low Sulphur Fuel Oil (VLSFO) dropped dramatically to as low as $200 per metric ton from over $700 per metric ton in 2019, making the longer route more economical.
3. Operational Flexibility and Capacity Management
Shipping companies often need to adjust their fleet's operational speed and routing to manage capacity and schedules efficiently. Slowing down, known as 'slower steaming,' can save fuel and reduce costs. The Cape of Good Hope route offers this flexibility without the strict procedural adherence required for Suez Canal transit. This operational freedom can be particularly valuable for managing fleet capacity and ensuring timely delivery.
4. Piracy Risks
The transit through the Suez Canal involves passing through areas with high piracy risks, particularly in the Gulf of Aden and the Horn of Africa. Although piracy incidents have decreased in recent years, they still pose a significant threat, necessitating expensive security measures such as hiring armed guards or rerouting. The Cape of Good Hope route, while longer, avoids these high-risk areas and the associated security costs.
5. Environmental Regulations
The implementation of the International Maritime Organization's (IMO) sulfur cap in 2020 has influenced fuel costs and availability. Compliance with these regulations can impact route choices. Some ships may opt for routes that allow them to use scrubbers or alternative fuels more effectively, thus reducing their environmental impact and operational costs.
6. Disruptions and Reliability
The Suez Canal is a critical chokepoint that can experience blockages and delays, as demonstrated by the 2021 incident involving the Ever Given, which caused a significant traffic jam and delayed numerous ships. Such disruptions can result in costly delays and have pushed some companies to consider more reliable, albeit longer, routes.
Data and Statistics
Transit Fees: $500,000 - $700,000 per large container ship.
Fuel Costs: In 2020, VLSFO prices dropped to as low as $200 per metric ton from over $700 per metric ton in 2019.
Additional Distance: Routing around the Cape of Good Hope adds approximately 3000 to 5000 nautical miles to the journey depending on the starting and ending points.
Piracy Insurance: Costs for piracy insurance and security measures can add tens of thousands of dollars per voyage through high-risk areas.
In conclusion, the decision to take the longer route around the Cape of Good Hope instead of the Suez Canal is a strategic choice influenced by a combination of economic, operational, and security considerations.