Monday, 8 August 2016

The North West Passage vs Suez and Panama Canals

John Burns left a comment on my post of three years ago explaining the pricing policies of the two canals and how they would be affected if the North West Passage became ice-free.

The Northwest Passage is operating. The 69,000 ton Crystal Serenity will be the largest ship ever to navigate the Northwest Passage. Starting on 10 August 2016, the ship will sail from Vancouver to New York City with 1,700 passengers, taking 28 days for the journey. It needs pilots on board to get through.

If large container ships use the passage in summer it will knock off a substantial time from China and Japan to the UK/Europe. From Shanghai to London Thamesport it is 11,866 nautical miles. From Shanghai to Liverpool via the Northwest Passage is approx. 9,211 (using Google Earth). That 2,600 mile less is substantial. Liverpool is soon bringing on-line its container terminal extension capable of handling ships with 20,000 containers - average now is around 4,000 containers. So imported Far East goods may become cheaper*.

His source, CBC News.

We will have to keep an eye on the Suez and Panama Canals' prices; these are based on the days saved compared to any alternative route multiplied by the daily cost of having a container ship at sea. It's a rental payment like anything else.

If going via the North West Passage is a week shorter than going round the Capes of Horn/Good Hope, container ships cost $10,000 a day to run and the pilot/additional insurance is $20,000, we would expect to see their tolls fall by $50,000 per ship.

* This bit is highly unlikely. Chinese factories sell for cost-plus; container ships cost what they cost; Western retailers sell goods for what they can get; everything else goes to rent (Canal charges or higher rents for retail premises). In any event, the cost of shipping per unit is insanely low so even if it fell by half and the entire saving were passed on to consumers, this would only knock 0.05% off selling prices (or something).


Bayard said...

"Chinese factories sell for cost-plus"

Are you sure? I expect the Chinese have a pretty good idea what the end consumer is prepared to pay for their widgets and would be taking that 0.05% saving for themselves.

John Burns said...
This comment has been removed by the author.
John Burns said...

Mark, adding some value. The 73,000 DWT Nordic Orion bulk carrier used the Northwest Passage about 18 months ago. Fully laden it was too large for the Panama Canal. 20,000 container Post-Panamax ships are also too large for the Panama Canal. They could use the Northwest Passage. The Chinese are assembling a small fleet of ships with reinforced hulls to use the passage. The aim is to sail in convoy with a Canadian icebreaker leading as pilot and able to cut through ice if the need is there. One ship with one ice breaker is an expensive undertaking. It makes economic sense to sail very large ships through the passage in convoy. There is a move to prevent oil tankers using the passage preventing environmental disasters. Then there is the Northeast Passage controlled by the Russians which some German ships have used.

Shipping movements will change for sure, but not greatly as the passage will only be used by a few large ships in a short time window. The ships that bring the toys to Europe for Christmas would surely use the passage. Liverpool looks to benefit being on the north west coast of England and in the large north of England population belt. As over 50% of containers docked at southern England ports are destined for the North of England it sort of makes sense.

The costing of the complete route may be the prime motive rather than time saving. With plenty of ships about and low rates, the shipping lines slow steam their vessels particularly on the eastbound leg to the Far East to preserve fuel, with some routing ships via the Cape to avoid paying the Suez Canal tolls. This adds a week to the transit time, but it apparently is cheaper than the alternative. Some ships take mainly empty containers to the Far East and come back full. They may go through Suez for one trip and around the Cape for the other.