Suez Route Dominates Asia-USEC Trade

Should the Panama Canal be worried, as carriers increasingly switch the routing of their Asian services to the longer Suez Canal route?

By MarEx 2014-11-10 09:28:00

The trend towards more Asia-US East Coast container services via the Suez Canal route and fewer via the traditional Panama Canal route is accelerating.

Based on Drewry’s proprietary database of container services, another 2 Panama weekly services between Asia and the US East Coast have gone in the past year and were replaced by an additional Suez loop (see Table 1).

Table 1
Changes in the Number of Asia-US East Coast Weekly Services, by Route

Source: Drewry Maritime Research (www.drewry.co.uk)

Source: Drewry Maritime Research (www.drewry.co.uk)

Counted in number of loops, only 62% of services in this tradelane now use the Panama Canal route. During the forthcoming winter season, when the G6 alliance merges its NCE and SCE Panama Canal services into just one loop, the proportion is expected to fall again to 60% (12 out of 20).

As a  new member of the CKYHE alliance, Evergreen replaced its former independent Asia-Panama Canal-USEC “AUE” service (using 4,200 teu ships) by a joint Asia-Suez Canal-USEC “AWE8/AUE” service with Hanjin (using 8,200 teu ships).

The number of services is only part of the story. Drewry calculated the relative capacity shares of the Asia-Panama Canal-US East Coast services and the Asia-Suez Canal-US East Coast services (see Figure 1). This shows an even bigger loss in share for the Panama Canal.

Figure 1
Capacity of Asia-US East Coast Weekly Services, by Route (teu per month)

Source: Drewry Maritime Research (www.drewry.co.uk)

Source: Drewry Maritime Research (www.drewry.co.uk)

Between October 2013 and October 2014, the Suez Canal route increased its share of total Asia-US East Coast all-water ship capacity from 44% to 52%. The Panama Canal route now finds itself as the less popular route – representing a huge turnaround from late 2009 when there were only three Suez routed services. (These calculations allow for deductions of wayport cargoes.)

The traditional benefit of using the Panama Canal was to enable shipping lines to reduce voyage time between Asia and the US East Coast, when compared to using the route via the Suez Canal or around the Cape of Good Hope. From Hong Kong and South China and from any other point further north, the Panama route is shorter.

So why are carriers so keen on switching to the Suez route?

Initially, the Asia-Suez Canal-US East Coast route thrived by also serving the Middle East, the Indian Subcontinent and South East Asia: for this part of Asia, the Suez route is shorter. Then this route spread to capture services from Hong Kong and South China.

A worrying development for the Panama Canal is that the Asia-Suez Canal-US East Coast route is now also encroaching on the Taiwan, Shanghai and Ningbo markets, even though the Panama Canal is supposed to have a distance advantage. An additional driver is that some production in Asia is moving from South China to lower labor cost countries such as Vietnam and Bangladesh.

Another reason for the switch of carrier strategy is that substantially larger ships can be deployed on the Suez route. The average size of ships on the Suez route is about 7,500 teu, whereas on the Panama Canal route the average is about 4,500 teu due to the Panama Canal’s current maximum size limit of about 5,000 teu.

An extra Suez loop adds nearly twice as much capacity as an existing Panama loop. The large difference in ship size, as well as the economies of scale which can hopefully be gained, are also why carriers are keen on deploying their many post-Panamax containerships on this loop. The switch to the Suez Canal route has now absorbed 91 post-Panamax vessels, which carriers would probably have struggled to employ on other routes, in Drewry’s opinion.

This raises the question: will the services go back to the Panama Canal route once the enlarged locks are completed and enable vessels of up to 13,000 teu to transit the Panama Canal?

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The main reason why carriers are switching to the Suez Canal route is that they currently have a surplus of 8,000 teu ships. Once the enlarged Panama Canal is open in 2016, Asia-US East Coast services (other than those from South East Asia) will probably revert to the Panama Canal route, provided its new canal tolls (yet to be announced) are reasonable.

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Source: http://ciw.drewry.co.uk/; Drewry Maritime Research