Uncertainty keeps shipping lines away from Suez Canal

Global container shipping lines remain hesitant to return to the Suez Canal despite hopes that a Middle East ceasefire might ease Red Sea security.

While the canal offers a faster and more economical route, persistent security risks and soaring insurance costs continue to push carriers towards the longer Cape of Good Hope alternative.

Although some had anticipated a shift back to the Red Sea, industry analysts warn that uncertainty is likely to keep shipping firms on their current course well into 2025. The Bab al-Mandab Strait, a critical maritime chokepoint, remains a hotspot for security threats, making the diversion around Africa a necessary precaution for most operators.

Rising costs and financial pressures
The extended route adds nearly two weeks to transit times, driving up operational expenses and sustaining high freight rates. Even with an influx of newly built vessels, pre-crisis conditions are far from returning. Shipping firms must weigh multiple factors, including geopolitical instability, insurance premiums, and the economic impact of their route decisions.

The cost of insuring a vessel passing through the Red Sea has surged from 0.05% to nearly 1% of the ship’s value, adding millions to operational costs. This financial burden makes a return to the Suez Canal an unappealing risk for many carriers without substantial security guarantees.

Despite the higher costs associated with the Cape of Good Hope route, shipping companies have little motivation to alter their course. Spot freight rates remain significantly elevated – 140% higher on routes from the Far East to the US East Coast, 100% to Northern Europe, and 135% to the Mediterranean. A premature return to the Suez Canal could destabilise these profit margins, making the status quo more favourable in the short term.

Outlook for trade routes
Until there is a fundamental shift in risk assessments and insurance conditions, most shipping companies are expected to continue avoiding the Red Sea. Industry experts suggest that only a sustained period of security stability and cost reductions will prompt a reconsideration of the traditional Suez Canal route.

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