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Ships Turn Toward Africa on Concerns Suez Blockage to L...

Business Maverick

Business Maverick

Ships Turn Toward Africa on Concerns Suez Blockage to Last Weeks

Commercial cargo and container ships ride anchor while waiting to transit the Suez Canal in Ismailia, Egypt, on Thursday, March 25, 2021. Photographer: Islam Safwat/Bloomberg
By Bloomberg
26 Mar 2021 0

Ships are beginning costly and time-consuming detours around Africa with the Suez Canal still blocked by a massive container vessel, as concerns mount that a complex rescue mission could take weeks.

The prospect of a longer-than-anticipated outage along what’s arguably the world’s most important maritime trade route threatens further turmoil in a shipping sector that’s already scrambling to keep sea transportation for everything from finished goods to energy and commodities on track.

Work since Tuesday to re-float the stricken Ever Given has so far been unsuccessful, with tugs and diggers failing to budge the giant, 400-meter long vessel and clear the route for stranded oceangoing carriers hauling billions of dollars worth of oil and consumer goods.

If containers can be left aboard the Ever Given, the re-float should be completed by Thursday, aided by higher tides, according to Randy Giveans, senior vice president of Equity Research for Energy Maritime at Jefferies LLC. Should cargo need to be unloaded or extensive repairs made to the canal itself, “then the downtime could certainly last at least two weeks,” he said.

For more details on the Suez Canal blockage, click here

Two liquefied natural gas tankers loaded in the U.S. and bound for Asian markets appear to have changed course in the mid-Atlantic and are now heading around Africa to avoid gridlock in the Suez waterway. A.P. Moller-Maersk A/S and Hapag-Lloyd AG are considering sending ships along the same route, moves that would follow a Synergy Marine-managed ship that is being sent around the Cape of Good Hope. Torm A/S, a Danish owner of tankers, said its customers have asked about the cost of options to divert.

Vessels currently outside of the Red Sea that were planning to use the Suez Canal are deciding whether to reroute around Africa, adding 10 to 15 days to their voyages, according to Giveans. Ships queuing on either end of the Suez Canal area are likely to wait to determine how long the passage will be closed before taking a decision to divert, he said.

“Regarding the possible alternatives, we are looking at all of them, including the Cape of Good Hope but also many others, for example air solutions for critical and time-sensitive cargo,” Maersk said in a statement. “No concrete decision has been taken yet. It will depend on how long the Suez Canal remains impassable.”

A particular worry for the broader economic impact of the Suez incident are the supply lifelines for European companies ranging from car manufacturers to retailers that rely on a steady flow of Asian imports. The outage comes on top of pandemic impacts that have already sowed havoc in supply chains with shortages and delays.

South Korea’s HMM Co. says it has had a giant vessel waiting outside the Suez Canal to return to Asia since Wednesday. A list of the cargo aboard gives an indication of the potential for disruption across a swathe of sectors, and includes wood, machinery, frozen beef, paper, powered milk, furniture, beer, frozen pork, auto components, chocolate, and cosmetics.

Caterpillar Inc., the largest U.S. machinery producer, said it is facing shipment delays and is even considering airlifting products if necessary. The U.S. National Security Council is closely monitoring the situation, a spokesperson said Thursday night.

Some tanker routes have moved higher with the Suez Canal blocked

The German container line Hapag-Lloyd said it was closely following “the implications on its services. We are presently looking into possible vessel diversions around Cape of Good Hope.”

What a Long Suez Closure Means for the Oil Price: Julian Lee

For the container lines that haul about 80% of global merchandise trade, a prolonged bottleneck between Europe and Asia risks throwing off ship schedules set months in advance so importers can plan their purchases, manage inventories and keep store shelves stocked or production lines running.

The problem compounds with every day container ships have to wait. Vessels that arrive several days late can’t be emptied and reloaded in time to make the scheduled return journey. That leads carriers to cancel trips — further constraining capacity and pushing up freight rates.

Rerouting around South Africa’s Cape of Good Hope would add 6,000 miles to the journey and something like $300,000 in fuel costs for a supertanker delivering Middle East oil to Europe.

Owners of supertankers hauling 2 million-barrel cargoes had been losing money for weeks on the industry’s benchmark trade route — a function of OPEC+ withholding millions of barrels of supply from the global market. On Wednesday, though, the carriers nudged back to profitability. Rates for smaller crude-carrying ships are climbing too, and earnings on oil-product vessels sailing from the Middle East to Europe have also jumped.

Fragile Infrastructure

“The longer this lasts, the more likely that you’ll have that impact,” said Brian Gallagher, head of investor relations at Euronav NV, owner of the world’s third-largest fleet of supertankers. “It’s more a reminder of the fragility of some of the infrastructure that’s out there. That may have a knock-on effect with people taking the view that they’ll take the longer transit for certainty.”

Shipbrokers report that oil traders are increasingly hiring tankers with “just-in-case” options to sail around Africa should the blockage drag on. Vessels sailing empty to collect oil in northwest Europe could get delayed, forcing the region’s exporters to seek alternative carriers, according to people involved in that market.

Rates to charter oil tankers in some regions have climbed higher since the blockage first appeared. Suezmax vessels, which typically haul 1 million barrels through the canal are now fetching about $17,000 a day, the most since June 2020. If more ships are forced to sail around the southern tip of Africa, that will boost rates as journey times increase.

The canal is currently holding up about 2 million barrels a day of oil flows, according to Braemar estimates. Congestion is also hitting bulk carriers that ship products from wheat to iron ore. There’s a long queue of bulk ships at the moment — just shy of 40 vessels — according to Peter Sand, chief shipping analyst at trade group BIMCO.

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