Developing a robust Asia-Suez/Med-US east coast route with bigger ships and shorter transit times
 Given that oil is cheap and plentiful and Suez Canal fees have been rising, it is not surprising that the Cape route has a newfound backhaul popularity during the Wuhan flu scare that has depressed shipping volumes worldwide.
While this has been true in recent times, the expansion of the Suez Canal, allowing greater transit volumes, will eventually have a downward influence on pricing when canal throughput again approaches usual levels after the flu scare recedes.
What's more promising in the future is the eventual impact of US east coast dredging, which has accelerated in recent years, opening a wide range of American ports to mega ships that may well be too big to transit the Panama Canal.
The point was not missed by analysts at the SRM Institute of Science and Technology near Chennai, in their report "The New Suez Canal: Economic Impact on the Mediterranean Maritime Trade".
Of the Suez Canal, they said: "The potential impact on the choice of the routes by shipping companies is evident when considering that the opening of the new canal led to a decrease in the transit time from 18 to 11 hours. It is estimated that using the Suez route, any shipping company may have an average saving of 5-10 per cent of total operating costs (depending on routes and distances). For example, on the Hong Kong-New York route, the new canal, with its reduction in transit time, might be a valid alternative to Panama."
Add to that, US east coast dredging, and there is another reason to put greater faith in the conclusions of the SRM Institute. Not only will the Suez route prove practical for the conveyance of ships in the 20,000-TEU range (Panama's limit is 13,000-TEU if conditions are right.) Having to discharge much of its Asian cargo in Europe, the headhaul mega ships will arrive at the US east coast light, while ships arriving on the Pacific side of Panama will enter heavy as they have not been able to unload a single box on Asia-USEC transpacific rotations.
Given this, say SRM Institute analysts, "the area of the new Suez Canal will be able to compete with the major logistics regions in the world and in particular with Northern European cities such as Rotterdam and Hamburg."
Then, there is the Mediterranean school of thought in maritime affairs, which questions the need to counterintuitively circumnavigate the Iberian Peninsula to reach the much vaunted Northern Range, from Le Havre in the west and Hamburg in the east, with Rotterdam and Antwerp in between.
The "Med School" offers several options from Piraeus in Greece, a Cosco-owned and operated Port to Algeciras in Spain, with terminals run by Maersk's APMT Terminals. And everything in between on the north shore of the Med.
Three things have held this development back, that is, accessing the rich European hinterland from the south. One is perception, simply because "everyone" uses the Northern Range access, few wanted to buck "everyone". But Greek ports like Piraeus, Italian ports like Spezia and Genoa, Spanish ports like Barcelona have been hammering away at promoting the southern route, winning lucrative contracts with big retailers, interested in diversifying risk to their supply chains. That is, if things go wrong on the northern range, they have a well-trodden path from the south.
Another blockage has been the lack of efficient onward passage north. But road and rail infrastructure has vastly improved since, so that was no longer true. And with the rising standard of living the in southern Europe, once regarded as a picturesque poverty zone, has since become a consumer-rich hinterland.
But the slam dunk negative against the southern route's general deployment has been, counterintuitively, that Asia-Europe freight rates are more expensive to cover the shorter distance from Shanghai to Spezia than to cover the longer distance between Shanghai and Hamburg. That's because revenues from larger cargo volumes on the longer northern route surpass smaller volumes delivered on the shorter southern route.
While that is generally true, it is not always true, and occasionally and increasingly, the Asia Med rate is equal to the northern range rate, steadily eroding the price advantage possessed by the northerners.
Thus, for Italian ports, the new Suez Canal represents a favourable opportunity: more and larger ships in transit require an adequate and urgent infrastructural upgrade, which also includes the dredging of the seabed and investment in logistics and innovation.
Said the SRM Institute analysts: "The strengthening of the Mediterranean-Suez-Gulf route is a strategic opportunity both for Egypt and Italy, especially for its southern regions, which could develop their natural roles as a logistics platform in the heart of the Mediterranean, thus boosting the Italian economy."
Perhaps more important, looking into the future, is the role the US east coast dredging will play, which has not had the time to exploit the advantage, partly because in some cases the dredging, while bought and paid for, had not been done, and partly because the full force of marketing has not been brought to bear to determine how to best utilise the potential the deeper channel depths provide.
One problem is that conditions are changing. There may well be a serious tipping point to come when more cargo flows through the southern route at the expense of the Northern Range, but that has yet to happen.
There is also the Panama Canal to consider. Exploiting the Panama Canal and its expansion was the basis of the Port of Savannah's plan to promote itself as an "Asian port", that is, a port that handled Asian cargo. And that move - 15 years ago - was based on the un-expanded Panama Canal that could only transit 4,500-TEU ships at a time when the world's biggest ship was the 14,000-TEU Emma Maersk.
In those days, only cargo bound for North America would use Suez and the Med if the cargo originated in Singapore and points west. Any Far East originated cargo would use Panama. But over time that changed. The latter route was clearly shorter than the one through the Med, but not by that much. The transpacific Panama route was nothing but water with nothing to pick along the way, while the Suez-Med route offered many trading opportunities enroute.
And with the expansion of the Suez Canal, and its resulting reduction in transit time, another advantage is added. If southern European rail and road infrastructure improves, increasing throughput through ports on the north shore of the Mediterranean will result, and this will likely advance the embryonic beginning to a robust, and perhaps dominant Asia-Suez-USEC route.
Of course, the world must recover from the self-inflicted wounds of the Wuhan flu before such possibilities becomes clear again. |
