Monday, 25 March 2013

Maersk Line switches boxship routes via Suez instead of Panama

Rising Panama Canal tolls and economies of scale have prompted Maersk Line- the world’s biggest container shipping company- to decide to stop using the Panama Canal and sail its ships through the Suez instead, media reports say. This decision will mean that there will be an upheaval in the segment in the Asia- US East Coast route, industry observers point out. 

Maersk CEO Soren Skou made a statement in Singapore confirming the development earlier this month: he said that the last Maersk container sailing through Panama will be on April 7, followed within a week by the first sailing through the Suez. Skou said that Maersk’s larger ships will carry 9000 TEU through the Suez at a time, and the logistics will be considerably cheaper than sending two 4500 TEU ships through the Panama Canal. 

 “The economics are much, much better via the Suez Canal simply because you have half the number of ships,” Skou said. “One of the reasons for why this is happening now is that the cost for passing through the Panama Canal has gone up. At the end of the day, it comes down to cost.” Maersk finds it is more cost-effective to send larger ships through the U.S., even if it meant the ships need to sail longer, he added. 

The Egyptian authorities say that the number of container ships passing the Suez Canal dropped 12 per cent to 6,332 in 2012. Conversely, the Panama Canal showed a small increase in the number of container ships that it serviced. Skou told Bloomberg that the China-US East Coast distance via the Suez is about 5% more than through the Panama Canal. From Singapore, however, the Suez route is actually shorter.

Analysts point out that time is of lesser importance in an era where all the major shipping companies are slow steaming their ships to control costs. With mammoth 18000 TEU container ships coming into the market over the next few years, more and more companies will find it cheaper to ship goods through the Suez instead of Panama, which has tripled its rates in the last few years to almost $450,000 a crossing for a 4500 TEU boxship. This may have been in anticipation of increased demand with the Panama Canal expansion project set to be finalised in two years from now; however, Panama is now finding out that it risks losing business. 

It is clear that, with pressure on freight rates set to continue, the Panama Canal authorities- and maybe even some US East Coast Ports- may find that they have to realign their business plans with new realities. Whether Maersk will use the Panama Canal after the expansion will depend on the economics, Skou said, in a telling statement. 

“The practice of using bigger ships through Suez Canal rather than Panama Canal will likely be followed by other carriers,” said Bonnie Chan, a Hong Kong-based analyst at Macquarie Group Ltd, quoted in Bloomberg. “This gives shipping companies a bit more flexibility in managing capacity.”

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