Impact of Suez blockage on the Tankers market

Posted by
The Signal Group
March 27, 2021

One of the largest container ships in the world has been partially refloated after it ran aground in the Suez canal, causing a traffic jam of vessels at both ends of this vital international trade artery.

The 400 meter long M/V EVER GIVEN, operated by Evergreen, became stuck near the southern end of the canal on Tuesday. About 12% of global trade passes through the Suez Canal, of which roughly 5% of the world’s oil is carried through daily. With this connector between the Mediterranean and Red Sea blocked, the alternative is to route via the Cape of Good Hope or wait until the situation is resolved. In this article we will focus on about 30 of these vessels that are laden and ballast tankers of more than 25kt deadweight. The map below visualizes them, heading towards Suez from both the West and the East.

Visual illustration of number of Tankers involved in the canal crossing

We expect that most vessels in ballast will decide to wait until the situation clarifies and if fixed on a charter party, will likely get canceled by charterers through protection clauses related to missing agreed upon laycan dates. This will no doubt affect vessel supply on both sides of the canal, as well as market rates. Black Sea-Med aframax seems to be leading the charge as seen below with ws170 on subs late on Friday the 26th.

Signal Ocean data: Vessel supply in the Med compared versus market rates

Within the next days to weeks, more vessels are expected to have to decide if they will cross through the Suez canal or will have to go through the Cape of good hope. 

For reference, a vessel, at the moment, crossing the Indian Ocean, would take 14 days to reach Malta if it goes through Suez versus 33 days if it goes around the Cape of Good Hope. Something to also consider is that for an aframax for example the cost to pass through the Suez Canal is roughly $300,000 in laden condition. 

The table below looks at the previous month’s canal crossings as an indicator of which vessel sizes might be more likely to be affected by delays or the need to take alternative routing.

Number of vessels that have crossed the Suez Canal in February 2021 vs the total voyages for these segments

Based on the above table the segments that could potentially see the highest impact are the Suezmaxes and the Aframaxes/ LR2s since those segments involve trading through Suez in both directions. Especially the LR2 market, being specifically thin, with a very small number of vessels both East and West can potentially see significant changes on Freight rates. The graph below shows the commercially available vessel supply in the Arabian Gulf (Jubail) within the next 15 days, the typical fixing window and it is obvious that vessel supply is already at the lowest we have experienced in the last 3 months. Freight rates have already reacted earlier this week as shown below.

Point in time commercially available vessel supply in Arabian Gulf in the next 15 days window versus LR2 market rates for the same region

A major shipping lane is clearly closed but this will most probably have a short term effect for a few charterers and owners that are trying to carry cargo through the canal at present. Most large crude tankers (VLCC) have been historically taking the route around the Cape when doing long East to West or West to East voyages. Mid sized tankers (Suez, Afra) are more likely to be affected, maybe more so on the carriage of refined products. Low levels of crude oil demand due to the 3rd wave of coronavirus across Europe and the USA are keeping oil prices in check, yet we still see a 4% rise in prices on a Friday.

Image credits: Julliane Cona/ Instagram

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