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Shippers opting to take longer routes

Trade routes: some shipping companies have been diverting their vessels around the Cape of Good Hope, rather than using the shorter Suez Canal route, as low oil prices have made it economically cost effective to take the longer route

The impact of low oil prices has caused some shipping companies to direct their vessels around the Cape of Good Hope, the southern most tip of Africa, rather than sail through the Suez Canal in Egypt.

It is the latest boon for fleet operators who have been reaping the benefits of the lowest global oil prices for 15 years.

And next month there will be a further temporary change for ship owners and operators to consider when the Panama Canal Authority imposes restrictions due to falling water levels resulting from the El Niño weather phenomenon in the Pacific Ocean.

During the past year oil prices have crashed due to oversupply, with Brent briefly falling below $30 a barrel in January.

That was good news for shipping firms involved in hauling oil, such as Bermudian-based Teekay Tankers, Nordic American Tankers and Frontline Management, as the day rates for hiring oil tankers climbed to a six-year high as oil traders made the most of the depressed oil market.

Oil prices have recovered somewhat during the past two months, with Brent trading yesterday at about $40.75 a barrel.

The historically low prices have presented options for shipping companies, particularly those with bulk carriers, to save money by detouring ships around Africa rather than through the Suez Canal.

Between October and the end of last year more than 100 ships took the longer route, a significant increase in traffic, according to oil industry analysis firm OPIS Tanker Tracker.

Simple economics is the primarily reason for the change. Sailing through the Suez Canal incurs a number of fees and charges. In normal circumstances that route still works out cheaper compared with taking the 3,500-mile detour around Africa, but with oil prices low comes lower priced bunker fuel — the dense oil used to power ships — consequently making the longer trip cost effective, in some cases.

Once you factor in the savings from not having to worry about additional insurance and security costs associated with piracy concerns from sailing through the Gulf of Aden, then the case for sailing via the Cape of Good Hope becomes even more compelling.

Jens Alers, group director of Bernhard Schulte Shipmanagement (Bermuda), which has offices in Par-la-Ville Road, is aware of the new trend. When asked for his thoughts, he said: “The ships which are making the extended voyage around the Cape are mainly bulk carriers with not very time-sensitive cargoes.

“The additional time it takes to take that route instead of going through the Suez Canal is affordable because the low oil price, but also because charter hire rates paid by the cargo interests are very depressed at this time — in other words: bulk carriers can be had at extremely low rates. When compared to the high fee levied by the Suez Canal authority this does start to make a lot of sense.

“For ships which would usually have to go straight through the Indian Ocean or even up or down the east coast of Africa there is another mitigating factor: by taking the southern route instead of the northern one through the Gulf of Aden and Red Sea the cost of piracy protection can be avoided.”

However, Mr Alers said that as oil prices and charter hire rates rise the Cape route will lose its attraction.

Meantime, a different challenge for shipping is emerging in Central America, where the Panama Canal is bracing for lower water levels in coming months.

The 48-mile ship canal, which connects the Atlantic and Pacific oceans, is a key passageway of international shipping and greatly reduces the time for ships travelling between the two oceans.

Changes in rainfall this year, connected to the El Niño climate phenomenon in the tropical Pacific Ocean, has brought drought conditions to the canal’s watershed area.

This has caused water levels in the Gatun and Alhajuela Lakes to fall substantially below their average levels, resulting in the Panama Canal Authority issuing an advisory to shipping that from April 18 the maximum draft for vessels using the canal will be 11.89 metres to ensure they can navigate the waterway without incident.