Friday, March 4, 2016

Weird Economic Science

The BBC reports some cargo ships and oil tankers making the transit from Europe to Asia, or vice versa, are skipping use of the Suez Canal and sailing instead around the south end of Africa, the Cape of Good Hope. The stimulus for this odd behavior is the lower price of oil.

Transit through the Suez Canal is far from free. A ship may pay upwards of $350,000 to sail its length, as well as being required to take aboard a free-loading Egyptian crew who must be paid to do nothing but eat heartily.

While going around the Cape adds perhaps 3500 nautical miles and 11 days to the passage, ship fuel is very cheap at present. Plus taking the extra time may be the equivalent of storing the oil for a week and a half which can be advantageous as oil brokers search for favorable prices in a buyers' market.

The DrsC traversed the Suez Canal on a cruise ship a couple of years ago, en route from Singapore to Rome - an month-long voyage that took us to India, Sri Lanka, Malaysia, Oman, Dubai, Jordan, Egypt, the Straits of Hormuz and more. It was an amazing trip.