Crisis over? Suez incentives win back transits in 2020
Suez Canal incentives boosted business in 2020 despite some vessels taking the Cape route to avoid fees. With competition from the Northern Sea Route, will it be enough?
In mid-2019, Marine Professional reported that vessels were avoiding the Suez Canal. Ship operators, led by rock-bottom fuel prices, were opting to burn a few thousand tonnes of additional fuel travelling around the Cape of Good Hope instead of paying the Canal’s transit tolls.
At the time of writing (January 2021), fuel prices still have not returned to 2018-19 levels; however, it does appear that various phenomena unique to 2020, like the aforementioned drop in oil prices and a lull in activity across many shipping segments in general, did not have the major economic effect on Suez Canal traffic many expected.
Instead, some 18,829 ships went through the Canal in 2020, representing 1.17bn tons; just 51 fewer than the record year of 2019. The decline in revenues was just 3%, to $5.61bn, compared with $5.8bn in 2019.
New Suez users boost revenues
Part of the reason for this, according to the Suez Canal Authority, was the success in attracting new users. New tonnage accounted for 20% of traffic in 2020; and the 4,087 new vessels represented 16.6% of total revenues. The disparity between the two figures reflects the fact that this boost was partly achieved with pricing incentives.
The number of bulk vessels passing through the Canal increased to 5,113 in 2020 from 4,200 in 2019; meanwhile the number of general cargo vessels increased to 1,792 in 2020 from 1,499 in 2019.
Meanwhile, 2020 saw some 4,710 transits by container ships (down from 5,375 in 2019) and 686 by LNG tankers (down from 750 in 2019).
The tanker situation was more varied. While the tailing-off of oil prices in Q2 led to a major increase in purchasing which boosted April-May tanker traffic through Suez, these gains were later mitigated by a reduction in European oil demand throughout the third and fourth quarter. Overall, 5,006 oil tankers made the transit in 2020, compared with 5,163 in 2019.
Although gains in bulk carriers and general cargo vessels were able to largely mitigate the complete loss of cruise traffic and a 60% drop in car carrier traffic, 2020 will still be the first year to buck a trend of gradually increasing revenues over the last five years.
In August 2020, Canal Authority Chairman Osama Rabie reported that since the $8.2bn Canal expansion in 2015, which added a 35km additional lane allowing traffic to travel in opposite directions, revenues have increased 4.7%.
However, there is much ground to recover. According to figures provided to the BBC in 2015, the Suez Canal justified its costly expansion with the claim that annual revenues would increase to $13.2bn by 2023, or a 155% increase in annual traffic. Even 2019’s record revenues of $5.8bn, though, represent an improvement of just 12.2%.
At the August 2020 conference, Rabie insisted that the Canal is still hoping to double ship traffic numbers and revenues by 2023. But even without taking into account the effects of Covid-19 and the re-routing of traffic in 2020, Suez’ performance is well short of targets.
Competition from the Northern Sea Route
Suez will, in the longer term, also have to worry about competition from Russia’s Northern Sea Route (NSR) which, on an Asia-Europe transit, could whittle down journey time by two weeks over the equatorial route. For a larger container ship, this could represent a fuel saving of around 2,000 tonnes, with a corresponding decrease in CO2 emissions of around 6,000 tonnes.
That the Suez Canal has leveraged incentives and fee reductions in order to claw back tonnage from Cape of Good Hope transits is a positive development for the environment as well. But if it is to keep increasing traffic, then, it seems likely that the Suez Canal will need to continue with, and step up, its incentive programmes long after the worst of the Covid-19 pandemic is over.
Charlie Bartlett is a journalist specialising in maritime.