Impact of Suez Canal Blockage
March 26, 2021
As it is now global news, the containership “Ever Given” run aground while in northbound transit through the Suez Canal on Tuesday. The 400-meter-long vessel is stuck in a way that is blocking all traffic from that spot of the Canal, with the Egyptian authorities suspending effectively all transit in order to facilitate operations to refloat the boat. So far, the companies that have been involved cannot estimate how long this will take, with some mentioning it could last days or even weeks.
According to Reuters, about 12% of global trade passes through the Suez Canal daily and hundreds of ships are reported queued up, with the number increasing as the days pass and the Ever Given remains unmoved. In the last few days, we also hear from a lot of owners and charterers making the decision to divert course and avoid the Canal, which means the vessels will have to traverse the Cape of Good Hope, adding a significant amount of time to their voyage as well as potentially hundreds of thousands of dollars of additional bunker costs.
Focusing on crude oil cargos, a lot of them originate in the Arabian Gulf and are routed to Europe on Suezmax vessels through the Canal. Even more are passing through as backhaul cargos from Europe to Asian destination on the same tonnage. We looked at satellite data to determine the impact on cargo transported on VLCC and Suezmax vessels.
According to historical data for the past three years, an average of 35 Suezmaxes and 2 VLCCs traverse Suez laden each month. This translates approximately to 1.3 million barrels of crude each day or about 180,000 tons. We also observed that VLCC traffic has been steadily diminishing whereas Suezmax traffic has been overall steady with some seasonality (Figure 1).
While it is too early to assess the full impact on DPP freight rates, we can assume that with crude cargos stuck or delayed, refiners will likely try to source the same from sources that are closer to them. We focus on Europe as the main area where this could become a major issue and we see mainly Aframaxes picking up the resulting volatility. At the same time, Suezmax and VLCC tankers that are delayed are effectively tightening the tonnage lists globally, leading to increasing freight rates. While this could benefit rates in the short-term, we believe that the impact will not be a lasting one.
Figure 1 – VLCC And Suezmax Suez Canal Laden Transits
Source: McQuilling Services
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