In the midst of the escalating conflict in Yemen, now entering its third month, global trade dynamics are experiencing a significant shift as vessels reroute around the Cape of Good Hope, leading to a considerable impact on the Suez Canal toll earnings. Recent trade data from Veson Nautical highlights the far-reaching consequences of the geopolitical tensions and conflict in the region, raising maritime security concerns and disrupting critical maritime trade routes.
The ongoing crisis in Yemen is not only affecting regional stability but also has implications for traffic through the Suez Canal, resulting in substantial costs for Egypt due to disruptions in trade and transport. The economic losses incurred by the Egyptian government serve as a potential catalyst for increased diplomatic efforts to broker peace and mitigate the adverse effects on global trade.
Rebecca Galanopoulos-Jones, Senior Content Analyst of Veson Nautical, analyzing the changes in Suez Canal toll fees for various vessel types, including crude tankers, bulkers, LNG, LPG, and containers, reveals a significant decline in overall toll fees by approximately 40% since the end of November 2023. Container tolls have seen a notable decrease of around 66%, from an estimated USD 18 million to USD 6 million at the beginning of January. The LPG sector experienced the most significant drop, with tolls down by approximately 93%, followed by LNG with a fall of 65.65%, crude tankers with a 23.34% decrease, and bulkers with a modest decline of about 7%.
A closer look at the sum of weekly calculated Suez Canal Net Tonnage (SCNT) transiting through the Suez Canal versus the Cape of Good Hope reveals a noteworthy trend. Since November 2023, there has been a 38% decline in SCNT through the Suez Canal, while the sum of SCNT going around the Cape of Good Hope has increased by about 25%, reflecting a shift in vessel routes due to heightened security concerns.
This rerouting is attributed to a surge in attacks targeting vessels in the region, compelling ship operators to alter their routes. The consequences include increased costs, rising oil prices, shipment delays, threats to maritime security, and concerns about geopolitical instability. The intervention of the US and UK military has also caused a spike in oil prices, with ongoing threats of retaliation from Iranian-backed forces, suggesting potential further disruptions to oil supply in the future.
The impact on cargo markets varies across sectors. In the crude tanker sector, rates for Suezmaxes and Aframaxes have increased by around 16% and 63% respectively since the start of December. The container sector has seen a reversal in the steady downward trend in freight rates since 2022, with increasing earnings for Post Panamax period rates by approximately 7% from December. Despite a lower impact on the bulker sector, rates have remained historically high for this time of the year.
“In the Container sector, the diversion has reversed a steady downward trend in freight rates since 2022. A large number of vessels have diverted from the Red Sea to Travel around the Cape of Good Hope, and this has also led to increasing earnings with Post Panamax period rates for one-year up by c.7% from December.” says Rebecca.
Rebecca concluded that The complex interconnection of geopolitical events, maritime security concerns, and global trade dynamics underscores the multifaceted challenges facing the shipping industry in the current scenario. Although longer transit times and increased earnings may be acceptable in the short term, looking further ahead, they could be outweighed by increased costs to the owner.
“From the perspective of Egypt, reduced traffic through the Suez Canal and therefore a lower income from toll fees is likely to persist for the foreseeable future. However, understanding the economic repercussions on the nation could foster a more proactive approach to resolving the conflict and alleviate its adverse effects on global trade.” says Rebecca.
Cover Image: Image for illustrative purpose. An MSC containership underway in the Suez Canal, November 5, 2017. Image Credit: byvalet/Shuttersctock.
Source: Veson Nautical