- Cape diversions lengthened voyages and tightened LR supply.
- Canal transit share is improving, but full recovery may pressure rates.
- Shift from 82-day Cape route to 50-day Suez expands tonnage.
The recent decision to stop attacks on vessels in the Red Sea is seen as a hopeful sign for traffic through the Suez Canal. Still, given their history of frequently changing positions, the market is understandably cautious about any rapid return to normalcy. That said, if security risks continue to decrease, it could lead to shorter voyage distances and a greater supply of tonnage in the product tanker market, reports Drewry.
Cape of Good Hope Diversions Reshaped Trade
Following the escalation of the Yemen conflict in late 2023, many product tankers started rerouting via the Cape of Good Hope. This shift was particularly noticeable in the LR tanker segment, where the diesel route from the Middle East to Northwest Europe grew by nearly 4,700 nautical miles. This diversion added over 30 days to the round trip for LR tankers, tightening supply and driving up freight rates. As transportation costs rose, diesel trade patterns changed, leading to an increase in Europe’s imports from North America while partially displacing cargoes from Asia. Despite the higher freight costs, Middle Eastern diesel remained competitively priced, helping to keep trade volumes stable through 2024.
Canal Transits Gradually Recovering
Recent statistics show a slow but steady recovery in product tanker transits through the Suez Canal, particularly following the ceasefire in Gaza. However, a complete return to pre-crisis levels could sharply decrease tonne-mile demand and put pressure on LR tanker earnings. Transitioning from the 82-day Cape route to the approximately 50-day Suez passage would significantly increase available tonnage and lower voyage costs.
EU-ETS Cost Savings from Shorter Routes
Taking shorter routes not only saves time but also cuts down on emissions-related expenses. For 2026, the projected EU-ETS fees for the Jubail–Rotterdam route are expected to drop to about USD 129,000 when using the Canal, compared to roughly USD 215,000 if going around the Cape. This financial edge could motivate a shift back to the Canal, assuming security conditions improve.
Market Outlook for Refined Product Flows
If the risks in the Red Sea continue to diminish, we might see a growing preference for the shorter Suez route in both East–West and West–East refined product flows. At the same time, Europe’s new restrictions on products made from Russian crude are likely to cut down on diesel imports from India in 2026. This could lead to a renewed demand for Middle Eastern suppliers, especially if traffic through the Canal bounces back fully.
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Source: Drewry
