Freight Industry Braces For Impact As Tankers Mull Rerouting Via Cape

The global oil tankers industry has mostly included the longer route of Cape of Good Hope as an option to move cargoes to Europe from the Persian Gulf and the Red Sea, which if exercised can push up the freight by over 10% in the near term and even much higher over the next few months, several market participants, says an article published on sp global website.

Current Developments

Amid rising security concerns in the Red Sea, the global oil tankers industry is contemplating rerouting shipments via the longer Cape of Good Hope route. This strategic decision, prompted by a series of recent attacks on commercial ships, is expected to impact freight rates significantly.

Security Concerns And Rerouting

• Ongoing conflicts in Yemen and Gaza have led to a surge in attacks on ships passing through the Red Sea.
• To mitigate risks, major players, including Maersk Tankers, are incorporating the Cape of Good Hope as an alternative route in their charter party agreements.

Freight Rate Implications

• If the Cape route is exercised, freight rates could surge by over 10% in the short term, with the potential for even higher increases in the coming months.
• The Persian Gulf-UKC route, assessed at $3.45 million and $4.3 million for LR1s and LR2s respectively, may experience a 9%-12% increase per voyage.

VLCCs And Supply Dynamics

• For Very Large Crude Carriers (VLCCs), the premium for choosing the Cape route, typically two Worldscale points, might escalate given the current situation.
• Loadings in Red Sea’s Bashayer port are expected to be impacted, posing a dilemma for owners on whether to ballast back or load at a premium freight.

Potential Cascading Effects

• The situation is being closely monitored, and if tankers undertake longer voyages, there could be a tightening of supply, potentially leading to a significant surge in freight rates.

Additional Costs And Offsetting Factors

• While the longer Cape route incurs additional fuel costs, the Suez Canal tariff savings may offset part of the expenses for owners.
• Charterers argue that daily earnings for owners will increase due to longer voyages, potentially compensating for additional costs.

War Risk Premium And Other Considerations

• The Additional War Risk Premium (AWRP) has spiked in the Red Sea, contributing to higher costs for passing through this region.
• The industry is also contending with upcoming carbon emissions taxes in Europe, with potential higher charges if the Cape route is chosen.

Operational Challenges And Negotiations

• The evolving situation requires swift decision-making, with tanker masters and crews having discretion on route choices based on safety considerations.
• Charterers, faced with rerouting decisions, may need to negotiate higher amounts for voyages affected by security concerns.

Concerns For In-Transit Ships

• For vessels already in transit without a Cape option clause in the charter party agreement, additional expenses will be borne by the owners.
• As the industry grapples with heightened security risks and potential disruptions, stakeholders are urged to navigate these challenges collaboratively while considering the broader impact on freight rates, supply dynamics, and additional costs.

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Source: sp global

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