Maersk Line to Dump Panama Canal for Suez as Ships Get Bigger

Maersk Line, the world’s biggest container shipping company, will stop using the Panama Canal to transport goods from Asia to the U.S. East Coast as bigger ships help the company move them profitably through Suez Canal.

Maersk Line will send through Suez Canal a vessel that can carry as many as 9,000 20-foot boxes at a time, instead of using two 4,500-box-vessels through Panama Canal, Soeren Skou, chief executive officer, said in Singapore yesterday. The last sailing through Panama will be on April 7 and the first service through Suez will be a week later, the company said in an e-mail.

“The economics are much, much better via the Suez Canal simply because you have half the number of ships,” Skou said. “One of the reasons for why this is happening now is that the cost for passing through the Panama Canal has gone up. At the end of the day, it comes down to cost.”

Shipping companies, including Maersk Line and Neptune Orient Lines Ltd. (NOL), have cut costs, reduced speed of their fleet and sold some vessels to contend with freight rates that are below break-even levels. Copenhagen, Denmark-based Maersk Line, which is taking delivery in June of an 18,000 TEU vessel -- the world’s biggest when it enters service -- has said pressure on charges will remain this year.

The company finds it more cost-effective to send larger ships through the U.S., even if it meant the ships need to sail longer, Skou said.

“The practice of using bigger ships through Suez Canal rather than Panama Canal will likely be followed by other carriers,” said Bonnie Chan, a Hong Kong-based analyst at Macquarie Group Ltd. “This gives shipping companies a bit more flexibility in managing capacity.”

Suez Vs Panama

The number of container ships crossing the Suez Canal fell 12 percent to 6,332 in 2012, according to the waterway’s authority. A total of 17,225 ships of all types traveled the link between the Mediterranean Sea and the Gulf of Suez last year, data compiled by Bloomberg show.

The Panama Canal was used by 3,331 container ships last year, up from 3,253 in 2011, according to data on the canal authority’s website. There were 12,862 total crossings.

The distance from China, the manufacturing hub for companies such as Apple Inc., to the U.S. east coast via the Suez Canal is about 4 percent to 5 percent more on average, Skou said. For example, the distance from Hong Kong to Charleston is about 12,000 miles via Suez and 11,000 miles via Panama. From Singapore, it’s actually shorter via Suez than through Panama, the company said in the e-mail.

‘Deeply Concerned’

Fees for ships to go through the Panama Canal have tripled in the past five years to $450,000 per passage for a vessel carrying 4,500 containers, Skou said. In February, the Suez Canal Authority announced canal toll increases that would be effective from May, according to the Asian Shipowners’ Forum.

The group “is deeply concerned” about the potential impacts of this move, it said in a statement earlier this month.

A $5.25 billion expansion of Panama Canal, the waterway handling 5 percent of global trade, will open by June 2015, six months later than originally planned. The canal connects the Atlantic and Pacific oceans.

Six years after the Panama Canal began the expansion to capture shipments of Asian-made goods to the U.S. East Coast, the flow of liquefied natural gas in the opposite direction promises to be a better bet.

Shipments of the fuel, along with rising commodity and energy cargoes between the U.S., Latin America and Asia, are likely to provide the largest sources of demand growth when the project is complete in June 2015, according to Administrator Jorge Luis Quijano.

Shipping containerized goods, which generate most business for the 50-mile link, has yet to return to the same level as 2007, two years before the global economy had its worst recession since World War II.

Whether Maersk will use the Panama Canal after the expansion will depend on the economics, Skou said.

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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