Indiscriminate attacks by Yemen’s Islamist Houthi rebels have forced major shipping companies to divert their routes around the Cape of Good Hope off the southern tip of Africa instead of the Suez Canal in the Red Sea, costing them up to US$1.5 million to US$2 million more in fuel costs per ship, according to an analysis. This will be a significant burden for HMM, which spent 1.37 trillion won on fuel alone last year, according to experts.
The Cape of Good Hope bypass route is more than 5,000 kilometers longer than the Red Sea route and requires about 10 days more for cargo arrivals, according to sources in the shipping industry on Dec. 26.
The African region lacks crude oil refining infrastructure, which results in African ports selling oil at higher prices compared to other major ports. The price of a ton of ultra-low-sulfur fuel oil in Cape Town was US$697.50 as of Nov. 21, 14.4 percent higher than in Singapore (US$609.50), according to British shipping magazine Lloyd’s List. At the port of Lomé in Togo, West Africa, the oil price exceeded US$750, while it stood at US$1,159 at Mombasa in Kenya, East Africa.
Shipping industry insiders are also facing increased economic pressure from EU environmental regulations. Alternative fuels such as biofuels are rare at ports when ships take the Cape of Good Hope bypass. Some shipping companies have adopted alternative fuels to reduce greenhouse gas emissions from ships.
Even if a Korean shipping company takes a risk and chooses the Red Sea route, it can hardly avoid high costs. Maritime insurance premiums for the Red Sea route are skyrocketing by the day. When the Israeli-Hamas war broke out in early October, the premium rate was 0.05 percent, but by mid-December it had risen to 0.2 percent. It then reportedly hit 0.3 to 0.5 percent just before Christmas. This translates to premiums of US$760,000 for a new US$130 million very large crude carrier (VLCC) and US$1 million for a very large container ship. Premium rates for grain export ports in Ukraine, an area expected to be attacked by Russia, range from 2.5 to 3.0 percent.
Costs of routes are a key trade secret of shipping companies. HMM did not disclose any cost changes as a result of the Red Sea crisis, either.