Clean tanker voyages through the Suez Canal are commanding a significant premium over the longer Cape of Good Hope route due to tighter supply and owners’ reluctance to use the shorter but riskier waterway, market participants, including charterers, owners and brokers, said.
Few owners, primarily of Greek, Chinese and Persian Gulf origin, are willing to send their ships via the Bab al-Mandab Strait and the Suez Canal despite improved risk perception and fewer maritime incidents in the region, sources said. As a result, more charterers are opting for the Suez Canal route than ship owners are prepared to take it, a UAE-based tanker broker said.
The Suez Canal transit now commands a $300,000 premium over the Cape of Good Hope route for Long Range tankers, according to brokers, charterers and ship owners trading on Persian Gulf-Europe routes. In November-December 2023, following Hamas’ attack on Israel and increased Houthi rebel activity near the Bab al-Mandab Strait, the Suez Canal route carried a $900,000 discount compared to the Cape of Good Hope, tanker broker data showed. Over the past two years, differentials narrowed as owners sought a risk premium for the shorter route.
Owners have occasionally sought parity between freight rates for both routes; however, charterers have resisted. Currently, owners are securing the premiums they demand for Suez Canal transits, a chartering executive with a global commodities trading company said.
Sources at least half a dozen major tankers chartering companies confirmed to Platts, part of S&P Global Energy, that they are moving cargoes through the Suez Canal. While some companies had already been using the route, increased demand and limited tanker availability have pushed freight rates higher, a source with one of the owners said.
“It all boils down to the eligibility of a fleet or tanker to move via the Suez Canal,” said another source with an owner. This is determined by the terms and conditions in the maritime insurance contract and the Ultimate Beneficiary Owner, or UBO, of the tanker. Some of the underwriters have mentioned in the contract that passing through the Bab al-Mandab Strait would not be eligible for insurance coverage, or would incur additional premium payouts, the source said. They regularly issue advisories to their clients to avoid the region, he said.
If the UBO of tankers are Israelis, Europeans and Americans, the risk perception is high, and tankers avoid moving through the Suez Canal despite the Israel-Iran ceasefire in June this year and the recent peace deal between Israel and Gaza.
However, with the security situation on the ground improving, charterers are demanding that the Suez Canal option be included, but finding it difficult to obtain what are called the “Suez suitable” tankers.
“For us, the crew safety comes first, and there are no plans to resume using the Suez Canal,” said a source with one of the world’s largest tanker companies by fleet. Charterers are of the view that tanker owners are keen to continue with the longer Cape of Good Hope route because that fetches higher returns and keeps their fleet deployed for a longer period of time. A Persian Gulf-UKC voyage via the Cape of Good Hope is 10-14 days longer than via the Suez Canal.
Daily earnings on the Persian Gulf-UKC LR2 and LR1 routes via the Cape of Good Hope are currently estimated by brokers at $49,000 and $35,000, respectively, based on bunker prices of around $437/mt in Fujairah. Owners are seeking a freight premium via the Suez Canal to get similar earnings on that route as well, they said.
Platts assessed this route at $4.6 million and $3.525 million for LR2s and LR1s Nov. 26 via the Cape of Good Hope, both up $200,000 day over day.
Source: Platts
