Transportation & Logistics Analysis

Bypassing Suez and Panama: advantage or disadvantage?

February 09 2024

Maritime transport has made an impromptu rediscovery of the 19th century sea routes via the Cape of Good Hope and Cape Horn with some advantages... albeit very temporary ones.

1/ What were the main motivations behind the construction of the Suez and Panama Canals at the end of the 19th century?

  • To support the development of the steam-powered industry and create a modern supply of regular shipping line services.
  • The reduction of transit times to develop economies, the idea that increasing speed can bring a rise in profits being particularly structuring.
  • To establish a certain Western supremacy in international trade.
  • To set up large-scale financial operations based on the management of large projects.

2/ What are the weaknesses of these structures today?

  • They pose significant nautical constraints.
  • They are expensive to operate and to transit through.
  • They are susceptible to geopolitical hazards.
  • They generate bottlenecks.
  • Speed, synonymous with energy consumption, is no longer a primary factor.
  • From a Western perspective, the strategic advantage is diminished by the fact that their use is now shared by all global actors.
  • In a context of structural overcapacity, shipping companies do not necessarily have an interest in favouring the shortest routes.

3/ Does the route around the Capes offer opportunities?

  • Advantage for Shippers: Taking the route round the Capes can help restore regularity to services, with a return to weekly timetables that are more reliable. As the regularity and reliability of maritime services are now more valuable than pure speed in the organisation of supply chains.
  • Advantage for Shipping Companies: The lengthening of sailing times in a context of sluggish demand presents a windfall effect for shipping companies, which currently have to absorb the massive arrival of new capacity. The detour therefore allows a certain readjustment of the balance of power between the goods and the shipping company.

4/ Disadvantages that predominate

  • A very unfavourable carbon footprint, that is difficult to justify especially if the ships have to increase their speed a little to partially compensate for the lengthening of the voyage.
  • A loss of earnings for the states crossed by these two canals, namely Egypt and Panama, which could cause an increase in political tensions.
  • A serious handicap for the states of the "Global South", particularly India and China, which need these passages to accelerate their development.
  • Increased exposure to fuel price volatility which complicates forecasting operating budgets.
  • A turnover rate of full containers per slot per year that deteriorates sharply.

5/ Factors not to be overlooked

Shipping companies are in theory the decision-makers in the choice of routes they take for their ships, after analysing the advantages and opportunities we have just listed. However, other parameters come into play.

  • Safety: In the case of the Suez Canal, the direct threat against ships, goods and especially crews is the responsibility of the shipping company, which as an employer must ensure the safety of its personnel, and as a service provider, must do everything possible to preserve the integrity of the cargo entrusted to it.
  • Risk management: Insurers no longer cover the passage through the Red Sea or at rates so dissuasive that in fact, companies have no real choice but to use the route via the Cape of Good Hope. It is ultimately they who, when the time comes, will in some fashion give the green light to take the route via the Suez Canal again.
  • Natural restrictions: the situation of the Panama Canal is very different, since the navigation restrictions are this time linked to an abnormally prolonged dry season due to global warming and the El Nino phenomenon. It is hoped that an attenuation of this cyclical phenomenon will make it possible to find in 2025-2026 more favourable navigation conditions, but here again, it is indeed an exogenous factor that will condition the options of the shipping companies. The Panama Canal is far from being closed down for technical reasons, but the water resource will need to be much better managed when the situation normalises.

Subscribe to the newsletter

Expert in Ocean shipping for 25 years, Jerome puts all his knowledge of the industry to contribution for Upply. Ship captain at heart, he has written the English-French Lexicon of Containerized Shipping (Paris: CELSE, 2001).
See all its articles