Major European shipping lines are gearing up to return to the Suez Canal. The Suez Canal is an Egyptian waterway that connects the Mediterranean and the Red Sea. It is a key logistics hub that enables Asia-Europe transport without circling the African continent.
Since the Red Sea crisis, the shipping industry has eased oversupply by rerouting via the Cape of Good Hope and boosting ton-miles (the value obtained by multiplying cargo weight by distance traveled). Some expect freight rates could plunge if a full-scale return to the Suez Canal begins.
According to the shipping industry on the 15th, on the 7th the Benjamin Franklin, an ultra-large 18,000-TEU (1 TEU = one 20-foot container) container ship operated by French carrier CMA CGM, passed through the Suez Canal and exited into the Gulf of Aden.
This is the first time a large container ship has transited the Suez Canal since Oct. 2023, when Yemen's Houthi rebels began attacking ships linked to Israel. It is also the first return to the Suez Canal among vessels operated by shipping alliances that include European and Asian carriers.
Zheng He, another 18,000-TEU container ship of CMA CGM, is also set to pass through the Suez Canal en route to Asia, and the Jules Verne, a 16,000-TEU container ship, is expected to transit the Suez Canal and return to Europe.
With the lines returning, the Suez Canal has caught its breath. The Suez Canal Authority implemented policies such as a 15% toll discount starting in May to boost throughput, but the return of large vessels had remained limited.
Then, as regional tensions eased with Israel and Hamas agreeing to a first-phase cease-fire on the 10th of last month, carriers began trial sailings to prepare for a return.
According to the Suez Canal Authority, 229 vessels returned last month, the highest monthly figure since the start of the Red Sea crisis. Ships from European carriers including CMA CGM and MSC were reportedly among them.
Before the Red Sea crisis, an average of 70 to 80 vessels used the Suez Canal each day. The current level has dropped to about 30 to 35.
In the shipping industry, the Suez Canal's traffic remains well below pre-crisis levels, but there is a view that if major carriers ramp up their return, it will accelerate the downward trend in freight rates.
The Asia-Europe route typically takes 36 to 39 days. Rerouting via the Cape of Good Hope extends the voyage to as long as 44 to 49 days. That reduces the amount of cargo a container ship can move, and the industry analyzes that ton-miles increase by about 11%.
For this reason, if transits through the Suez Canal ramp up, the available capacity on Asia-Europe routes (the total amount of cargo a ship can carry) will surge, inevitably putting further pressure on already declining freight rates.
As of the 7th, Europe route freight rates stood at $1,323 per TEU based on the Shanghai Containerized Freight Index (SCFI), down 2% from the previous week. That is a 48% drop compared with the same period last year ($2,541).
A sharp fall in Europe route rates would also hurt the earnings of HMM, a Korean long-haul carrier. In the first half of this year, Europe routes accounted for 35% of HMM's revenue. By cargo volume, 29% of its total is on Europe routes.
However, with risk factors remaining—such as the Houthi rebels saying they will stay on alert—and high insurance premiums, some expect it will take time before carriers fully return to the Suez Canal.
An industry official said, "It is difficult for carriers to immediately switch routes back to the Suez Canal, but European lines are attempting a return," adding, "If conditions around the Suez Canal stabilize, carriers can reduce not only fuel costs but also the burden of carbon emissions, prompting many fleets to return, which could lead to lower freight rates."