As the global shipping industry navigates pandemic-induced challenges, the Suez Canal Authority's attempt to attract more vessels through fee reductions appears to be yielding mixed results. The recent decision by CMA CGM's "CMA CGM Alexander Humboldt" to bypass the canal offers a revealing case study in contemporary maritime economics.
The Suez Canal Authority recently announced a 6% reduction in transit fees for container ships traveling from Northwest European ports to Southeast Asia and the Far East. Additionally, fee exemptions for liquefied natural gas (LNG) carriers increased from 25% to 30%. These measures, effective from April 1 to June 30, 2020, were implemented to stimulate traffic through the crucial waterway.
The Economics of Avoidance
Despite these incentives, some shipping companies continue to opt for alternative routes. The 16,020 TEU "CMA CGM Alexander Humboldt," serving the FAL-1 route, originally planned to transit from Algeciras, Spain, to Port Klang, Malaysia via the Suez Canal. Instead, the vessel is now rounding the Cape of Good Hope, with an estimated arrival date of April 21.
This detour adds approximately five days to the typical 21-day journey and increases fuel consumption. With current depressed oil prices, the additional fuel cost amounts to roughly $200,000. However, shipping companies have calculated that bypassing the canal still proves more economical than paying Suez transit fees, which typically range between $400,000 and $500,000 per vessel.
Strategic Considerations Behind Route Selection
Several factors converge to make alternative routes attractive:
Fee Structure Rigidity: The canal's reduced fees may still not match shipping companies' expectations or offset the savings from alternative routes.
Oil Price Dynamics: Plummeting fuel costs have significantly decreased the expense of longer voyages, enhancing the appeal of circumventing canal fees.
Capacity Management: With pandemic-related trade declines creating vessel oversupply, extended transit times help absorb excess capacity.
Precision Cost Analysis: Shipping lines increasingly employ sophisticated models to determine optimal routes based on comprehensive cost assessments.
The Suez Canal faces mounting challenges to maintain its position as the premier maritime shortcut between Europe and Asia. Should low oil prices persist, more substantial fee adjustments may be necessary to retain traffic. Furthermore, evolving trade patterns and vessel size trends will continue influencing routing decisions, requiring ongoing adaptation from canal authorities.