Canal disruptions spur fast steaming: UN

Ship operators are increasingly speeding up their vessels to offset the lengthier voyages around the Cape of Good Hope necessary to avoid the conflict-afflicted Suez Canal and drought-plagued Panama Canal, according to a UN Conference on Trade and Development (UNCTAD) report published today.

"The disruption in the Red Sea and Suez Canal, combined with factors linked to the Panama Canal and the Black Sea and leading to rerouting vessels through longer routes are causing vessel sailing speeds to increase," the UNCTAD said. "This is a means for ship operators to ensure schedule integrity and manage the fleet capacity."

The jump in steaming speeds is a departure from record slow steaming speeds hit last year among the dry bulker segment as shipowners attempted to reduce emissions per the International Maritime Organization's (IMO) new environmental regulations, which kicked off in 2023.

"An increase from 14 to 16 knots would increase ship (fuel oil) consumption per mile by 31pc," the UNCTAD said. "These trends could erode the environmental gains that had been achieved through slow steaming."

The Argus-assessed carbon cost of freight (CCF), which ship operators have to pay to comply with the EU ETS, of a 65,000 dwt long range (LR1) refined products tanker traveling from Ras Tanura in the Middle East to Rotterdam was at 46¢/t on Wednesday, assuming a Suez Canal transit under nominal conditions, for a lumpsum of $30,223. The same fee to shipowners could hit as high as 96¢/t, or $62,129 lumpsum, assuming a 31pc increase in consumption from a two-knot increase in speed alongside the additional two weeks of travel time to avoid the Suez Canal around the Cape of Good Hope.

Traders shift to rail

Some traders looking to move commodities between the Atlantic and Pacific basins are adjusting their focus away from seaborne routing altogether, with rail traffic jumping in the US since the start of the year because of the rising danger near the Suez Canal and the ongoing drought restrictions at the Panama Canal, according to the UNCTAD.

"In the United States, demand for rail transport services has surged as a result in recent weeks, as shippers no longer have the option of going through the Suez Canal as an alternative to the Panama Canal," the UNCTAD said. "The land bridge, which connects the ports of Los Angeles and Long Beach in the United States by rail with the wider North American hinterland, is the other main competitor for the Panama Canal."

The move mirrors major container shipping giant Maersk, long a preferred client of the Panama Canal because of the large amount of traffic it pushed through the waterway, choosing earlier this year to halt many Panama Canal transits in favor of discharging two separate vessels on either side of Panama and swapping their cargoes by rail instead.

West coast South America countries like Chile, Peru and Ecuador funnel 22pc, 22pc and 26pc of their total foreign trade volumes through the Panama Canal, according to the UNCTAD, and buyers in these countries of refined oil products like diesel and gasoline sourced from the US Gulf coast will need to continue to vie for booking slots at the Panama Canal in the absence of a rail connection. Those without slots will need to win auctions, which jumped above $500,000 lumpsum in early February per Argus assessments for the medium range (MR) tankers utilizing the Panamax locks, to secure passage.

By Ross Griffith