With nationwide demonstrations and political violence breaking out almost daily across Egypt, the specter of a temporary Suez Canal closure is haunting ocean shippers and the container lines that use the canal to transport their cargo to and from East Asia and the Indian Subcontinent.
The threat of a canal closure has yet to have any impact on political risk insurance premiums, said John Barnwell, global product leader for ocean cargo at Allianz Global Corporate and Specialty, but any canal closing would cost shippers increases in insurance premiums because of delays.
It also would cost U.S. and European shippers substantial surcharges because carriers would immediately adjust their schedules to minimize delays by increasing speed.
They would abandon slow-steaming and increase speeds to 22 knots in each direction, leaving a safety margin of between 24 and 25 knots, London-based consulting and research firm Drewry said in its weekly Container Insight report.
As a result, shippers would have to pay a hefty surcharge to cover the fuel costs of detouring around the Cape of Good Hope.
Egypt’s armed forces are unlikely to allow any political group to interrupt the functioning of the Suez Canal for long, because canal tolls account for about $5 billion in government revenue annually and make up an increasingly important portion of total revenue now that unrest has choked off most tourism.
If the Suez Canal were to close for any length of time, however, container ships still would be able to steam from Asia to North Europe around the Cape of Good Hope in approximately the same time as via Suez at current speeds because they would avoid the slow speeds they have to adopt when passing through the canal.
“There are still more than enough container ships to cope with the extra distance of sailing between Asia and Europe around the Cape of Good Hope, with transit times remaining little longer due to their reserves of speed,” Drewry said.
After taking into account the savings from avoiding the Suez transits, shippers with cargo aboard a vessel capable of carrying 13,100 20-foot-equivalent container units would have to pay a surcharge for the detour of around $58 per TEU for eastbound containers and $222 per TEU for westbound containers, Drewry said.
In the case of a 10,000-TEU vessel, the extra cost would be $66 per TEU eastbound and $248 per TEU westbound.
“Both very approximate calculations ignore the extra cost of diesel, and savings made by avoiding anti-piracy convoys through the Gulf of Oman,” Drewry said.
The Suez Canal route remains as popular as ever and promises to become more so as carriers have increased the number of services from Asia to the U.S. East Coast. Carriers in May started cascading larger, more fuel-efficient post-Panamax ships onto service to the U.S. East Coast from the moribund Asia-Europe trade. This enables them to cut slot costs by using ships that are too large to pass through the Panama Canal to the East Coast.
Even though the number of vessel transits through the Suez Canal declined 6.7 percent year-over-year in the first three months of this year, average ships size has increased by 0.6 percent, Drewry said.