Suez routings to U.S. East Coast increase with bigger, more efficient ships.
By Chris Dupin
As work continues on the expansion of the Panama Canal, fuel has gotten extremely expensive and big containerships very common.
One of the results is a growing amount of cargo moving between East Asia and North America’s east coast via the Suez Canal.
Fuel has gotten so costly that Gene Seroka, president of APL Americas, told attendees of an American Association of Port Authorities conference on “Shifting International Trade Routes” in January that “today, nearly zero vessel strings going through the (Panama) canal on an East-West transit basis make any money whatsoever.”
In the third quarter of 2007, when the Panama Canal expansion work began, bunker fuel was selling for about $380 per ton in Singapore, while in the fourth quarter of 2012 the average was $617 per ton. (And that was down from an average of $734 per ton in the first quarter of 2012.)
At the end of 2012, there were 961 ships with capacity of more 5,100 TEUs each, according to research firm Alphaliner. These ships collectively had a container capacity of 7.8 million TEUs, more than 48 percent of the world capacity. And the amount of capacity on ships that fit through the canal is even smaller as some newer, energy efficient containerships are being built with capacities that are smaller than the biggest Panamax vessels, but with wide beams that will not allow them to pass through the Panama Canal’s current locks.
The maximum size of ships that can use the Panama Canal will grow from about 5,000 TEUs to as much as 14,100 TEUs when the expanded waterway opens. Originally, the canal was expected to open in 2014, but the Panama Canal Authority said the project, which is just over half-way completed, is now scheduled for completion in 2015.
Of course, the growing size of containerships is one of the factors motivating the enlargement of the canal, but meanwhile, carriers are rapidly embracing Suez routings.
In February, as this issue of American Shipper
was going to press, Maersk announced in April it will reroute its TP7 service, which currently uses the Panama Canal to connect East Asian ports with Savannah, Ga.; Charleston, S.C.; and Miami, to a trans-Suez service. Maersk said it will combine T7 with its AE9, a service between Asia and Europe that’s part of its Daily Maersk service.
The new TP7/AE9 service will operate with 11 7,000-TEU vessels currently deployed on AE9. TP7 is currently using 4,000-TEU-size ships.
North Europe cargo will be transloaded in the Mediterranean ports of Tangiers on the westbound voyages from Asia and Valencia on the eastbound voyage back to the Far East.
The new rotation will be Ningbo, Shanghai, Yantian, Hong Kong, Tanjung Pelepas, (Suez transit), Tangiers, Savannah, Charleston, Miami, Valencia, (Suez transit), Kaohsiung, and Ningbo.
Even before Maersk switches TP7, BlueWater Reporting estimated the weekly allocated TEUs on Suez services from East Asia to the U.S. East and Gulf coasts grew 142 percent from Jan. 1, 2008, to 30,329 TEUs at the end of January this year. That’s a much faster pace than the 41 percent growth during the same period in weekly allocated capacity on Panama Canal services from East Asia. Still, there was more weekly allocated capacity on the Panama strings, 50,948 TEUs, according to BlueWater.
BlueWater statistics showed the number of ships from East Asia to the East and Gulf coasts of the United States and Canada using Suez routings have grown from 35 at the beginning of 2008 to 68 at the end of January 2013, and the average vessel size has grown from 4,877 TEUs to 6,706 TEUs over the same period.
The number of ships on Panama routings also grew during the same period, from 93 to 151, but the size of the ships hardly budged, increasing in the same period from 4,380 TEUs to 4,488 TEUs because of the limiting size of the Panama Canal.
William Woodhour, head of North American trades at Maersk Line, agreed with Seroka’s assessment.
“It would be difficult for me to see how any service going through the Panama Canal that serves Asia to the U.S. East Coast could possibly be making money,” he said.
Woodhour noted there are three major developments that have occurred over the past five to six years which have resulted in differences between the transpacific services from East Asia-to-the U.S. West Coast and East Asia-to-the U.S. East Coast trades:
- First, transpacific services to the West Coast have been able to take advantage of economies of scale that are not yet available to East and Gulf coast services with Panama Canal routings. (At the beginning of 2008, the average size of ships calling at West Coast ports was 5,077 TEUs, 697 TEUs more than the average for ships using the Panama Canal, and 200 TEUs more than those using the Suez routings, according to BlueWater. Today, there are ships with 10,000-13,000 TEUs serving the West Coast, Woodhour said. While ships serving the East Coast through the Panama Canal are still limited to a maximum of 5,000 TEUs or less until the canal’s expansion is complete. Because of those larger size vessels, “we estimate that services to the West Coast have increased their economy by about 35 percent,” he added.)
- Second is the rising cost of bunker fuel. (Not only do ships calling at East and Gulf coast ports have longer voyages to make, but many Panamax ships are older — built in the 1980s and 1990s — and aren’t as fuel efficient as the more modern, post-Panamax tonnage.)
- Lastly, tolls at the Panama Canal have risen. (While yearly increases may seem modest, Woodhour said when totaled over several years they have been significant. He noted tolls have to be paid on both eastward and westward voyages. In 2005, the tolls were $42 per laden TEU and $33.60 for ballast containers. Today, shipowners pay $74 per TEU for each slot on the vessel, plus $8 for each loaded container. Tolls are lower if a ship is ballasting.)
“Add those three things up and there has been a tremendous shift in East Coast versus West Coast,” Woodhour said.
He also explained during the same time the spread in the revenue levels — as measured by indexes produced by the Transpacific Stabilization Agreement — has remained relatively constant even as those costs have increased.
“I can see in my portfolio that the Panama services are not doing as well on a relative basis as every other service — not that the other services are doing particularly well. But this one kind of stands out,” Woodhour said.
Maersk has 10 strings between the Far East and the United States. Eight are to the West Coast and two to the East Coast, both of which will now be routed through the Suez Canal.
That other Suez service, offered in conjunction with CMA CGM, uses ships with average capacities of 8,399 TEUs, according to BlueWater.
Woodhour said services can be designed to reach further north in Asia to places such as Shanghai “and you start to build a pretty inspiring case that says that if I route ships today that would go from Europe to the Med to Asia to the West Coast why can’t we go from Asia to the Middle East or Med to the U.S. East Coast, and you can transfer on to Europe.
“There are some facts in front of us that would lead people to evaluate alternatives in routing via the Suez and taking advantage of some of these economies until the Panama Canal expansion is done,” he said.
With the decision by Maersk to switch the TP7 to a trans-Suez routing, there are now seven Suez services between East Asia and North America’s east and gulf coasts, and many call ports in China instead of turning around in Singapore. The New World Alliance’s SZX turns around in Singapore, while the Grand Alliance’s AEX also turns around in Southeast Asia after calls in Laem Chabang in Thailand and Cai Mep near Ho Chi Minh City.
But the four other East Asia-to-North American east coast services call ports further north in China.
The CKYH Alliance/MOL AWE4 service and New World Alliance/Evergreen/Hanjin SVS/AUE3 services call ports in southern China, such as Hong Kong, Shekou and Yantian in Shenzhen.
The three other services call those South China ports, but also push further to North China.
In addition to the new TP7, Mediterranean Shipping Co.’s Golden Gate Service calls Ningbo and Shanghai, and Maersk and CMA CGM’s TP3/TP9 pendulum service, which combines a Suez leg between East Asia and U.S. East Coast with a transpacific leg between East Asia and the Pacific Northwest, also calls those ports (as well as Busan, South Korea, on the eastbound transpacific leg to Seattle and Vancouver and to Yokohama, Japan, on the westbound transpacific leg coming back from Seattle and Vancouver.)
|Sources: BlueWater Reporting, New Zealand Ministry of Transport, Bloomberg.
Woodhour expects other carriers to look at additional Suez routings, noting the G6 Alliance recently announced its expansion into the Far East-to-North America trade and said it would have three Suez and three Panama strings.
In both 2011 and 2012, Woodhour said 35-37 percent of Asia-to-U.S. East Coast capacity went via the Suez Canal, and he predicted “that number may go over 50 percent this year as carriers take a look at these fundamentals.
“You’re faced with a choice, either your revenues go up or you adjust your costs. These are the alternatives facing the carriers,” he said. “There is a lot of charm in looking at converting existing Panama services to the Suez Canal.”
Richard Larrabee, director of the port department at the Port Authority of New York and New Jersey, said Suez routings are in ascendency, because even though China is still by far the biggest source of imports and destination for exports moving through New York, growth with the country is flattening while trade with nations in Southeast Asia and the Indian Subcontinent are increasing.
He said another major advantage of Suez routings is that ships can participate in many trades — China and Southeast Asia to the Indian Subcontinent or Middle East, or the Middle East to Mediterranean, for example.
“You can take a big ship from Singapore and go west and stop at a lot of places and pick up and drop off cargo along the way. When you leave the Mediterranean, you are full, and you go to the U.S. East Coast and therefore you have a much more efficient transit for that big ship as opposed to coming all the way across the Pacific Ocean and going through the Panama Canal.”
Allen Clifford, executive vice president for MSC (USA), noted because carriers are asset-intensive businesses, “we spend our days thinking of how to lower our costs. In the case of MSC, this means continuing our direction toward maximization. Our goal is to insure that when a vessel reaches final destination, our allocation is completely and always full.”
While five of the East Asia-North America Suez services make intermediate stops at one or more ports in the Indian Subcontinent, Middle East or Mediterranean, two sail directly from ports in Southeast Asia — Singapore or Tanjung Pelepas to New York — without intermediate stops so as not to increase transit time.
Elimination of those intermediate stops “is what has helped expand the reach to getting to areas such as Shanghai,” Woodhour said.
Curtis Foltz, executive director of the Georgia Ports Authority, said “Suez services are here to stay. I think both are complementary. Both are finding a way to service Asia, from Japan and Korea all the way down to Southeast Asia, Singapore and Vietnam.
“That whole region is such a huge catchment area for both imports to and exports from the U.S. that we will continue to see growth in both Panama and Suez services,” he said.
“Once the Panama Canal is expanded and they can take advantage of the bigger ships, I think some of the Suez services will stop reaching north of the Hong Kong zone — Shanghai, and focus on Southeast Asia,” Foltz said. “But I truly believe Suez routes coming out of Southeast Asia, taking advantage of that double-dip opportunity in the Indian Subcontinent are here to stay and obviously the Panama Canal services, all-water services to the East Coast are real and they are there for the long term.”
The expanded Panama Canal will “not take anything away from the Suez route,” he said, but “opens up windows of opportunities for U.S. East Coast ports to catch all of that Hong Kong and north freight and potentially eat into some of that West Coast market share.”