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ABCAP Analysis: Shifting Bunkering Dynamics Amid Red Sea Conflict

The attacks have created an atmosphere of uncertainty and heightened risk, dissuading shipowners from bunkering in Red Sea ports. The imposition of a nearly tenfold increase in war risk premiums is an additional deterrent, encouraging vessels to minimize their time in the war risk zone. While there is hope that international pressures may lead to a compromise and diminish the attacks, the impact on bunker liftings in Red Sea ports is expected to be significant.


Increased Global Bunker Demand:

The foremost impact stems from the rerouting of vessels around the Cape of Good Hope, a consequence of the conflict in the Red Sea. This diversion is expected to contribute to a substantial increase in global bunker demand, estimated at an additional 7 million tons if the conflict persists for a year. The shift in shipping routes, however, has its own set of challenges, with Suez Canal transits decreasing by approximately 30%.


Changes in Liner Vessel Behavior:

Larger liner vessels are opting for bunkering in more familiar ports in Europe and Asia to avoid uncertainties associated with less familiar bunkering locations. The ambition to catch up on schedules has led to speed increases, with reported jumps from 16 to 20 knots, driving up global demand.


A Comparative Analysis

Red Sea compared to Cape of Good Hope
Source: Vessel Value, Herald Network Graphic

To further underscore the practical implications of the Red Sea conflict on shipping routes, let's consider the example of a voyage from Kaohsiung to Rotterdam. The traditional route via the Suez Canal spans approximately 18,520 kilometers (11,509 miles). At an average speed of 16.43 knots, the journey takes an estimated 25.5 days. Contrastingly, if vessels opt to circumvent the conflict zone and take the longer route via the Cape of Good Hope, the distance extends to around 25,002 kilometers (15,534 miles). Despite maintaining the same average speed of 16.43 knots, the extended route results in a prolonged journey of approximately 34 days. This stark difference in travel time exemplifies the tangible impact of altered shipping routes on voyage duration, prompting industry participants to carefully weigh the cost-benefit considerations amid evolving geopolitical circumstances.


In our example of the voyage from Kaohsiung to Rotterdam, comparing the Suez Canal and Cape of Good Hope routes, let's dive into a cost assessment.


Suez Canal Route:

  • Distance: 18,520 kilometers (11,509 miles)

  • Average Speed: 16.43 knots

  • Estimated Duration: 25.5 days

  • Daily T/C Rate: $50,000

Total Cost: $1,275,000 (25.5 days * $50,000/day)


Cape of Good Hope Route:

  • Distance: 25,002 kilometers (15,534 miles)

  • Average Speed: 16.43 knots

  • Estimated Duration: 34 days

  • Daily T/C Rate: $50,000

  • Savings on Suez Transit Dues: $360,000

  • Additional Cost due to Extended Journey: $450,000 (9 days * $50,000/day)

Net Cost Increase: $90,000 ($450,000 - $360,000)


Alternative Scenario with Increased Speed (20 knots):

  • Suez Canal Route Duration: 21.7 days

  • Cape of Good Hope Route Duration: 25.8 days

Total Cost Comparison with Increased Speed:

  • Suez Canal Route: $1,085,000 (21.7 days * $50,000/day)

  • Cape of Good Hope Route: $1,290,000 (25.8 days * $50,000/day)


The economic ramifications of the conflict-induced vessel diversions are substantial. Charter costs for a 14,000 TEU liner can increase to nearly $350k one way, resulting in an estimated $100k increase in bunker costs and a corresponding increase of $40/TEU.


Impact on Suez Canal:

If vessel diversions continue at the current rate, it is estimated that global bunker demand will increase by 600,000 tons per month, costing owners and charterers around $400 million. Simultaneously, the Suez Canal Authority stands to lose approximately $260 million in revenue, emphasizing the broader economic consequences.


ABCAP Conclusion:

In examining the cost comparison between the Suez Canal and Cape of Good Hope routes for the Kaohsiung to Rotterdam voyage, it is evident that the decision-making process involves a delicate balance between time, bunker consumption, and associated costs. The analysis showcased that while the Cape of Good Hope route incurs additional costs due to extended journey times, the alternative scenario with increased vessel speed mitigates some of these concerns.


However, it's crucial to note that the increase in speed, although reducing the overall voyage duration, also contributes to a rise in bunker demand and associated costs. Striking the right balance becomes paramount, as accelerating speed to nearly meet the Suez Canal route's travel time helps avoid significant increases in Time Charter (T/C) day rates but necessitates careful consideration of the ensuing spike in bunker costs.


As uncertainties persist, bunker buyers are advised to establish close collaboration with trusted partners to secure stable bunkering pricing contracts. This strategic approach will help mitigate the potential impact of spot price premiums, which could surge amid the ongoing geopolitical developments. By fostering strong partnerships and staying ahead of market dynamics, industry participants can navigate these challenging times with greater resilience and cost-effectiveness.


For more calculations and information, contact us directly.


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