Scrutinizing the tradition: What are the economic implications of circumnavigating the African continent instead of using the Suez Canal?

Abstract

This Bachelor thesis, conducted at Chalmers University of Technology, examines the economic implications for circumnavigating the African continental as an alternative to using the Suez Canal, for container vessels in varying market conditions. The case study was motivated by historical disruptions in the Suez Canal, including blockages and recent geopolitical tension that forced commercial vessels to reroute via the Cape of Good Hope. The research analyzes the additional operational cost incurred from the alternative routings and models the break-even points under different market scenarios and space utilization. Through quantitative analysis, including case studies and economic modeling, the thesis explores how the vessel size optimization and route selections effect a vessel and subsequently the transport service provider’s economic result. The findings indicate significant economic impact of route choice, which vary according to market conditions and ship capacities. Key findings indicate that larger vessels benefit more significantly from economies of scale, which can compensate the increased cost associated with the longer sailing around the Cape of Good Hope, particularly in a high market condition. The study is limited to the economic aspects of rerouting a vessel from far east Asia to the northwest continent of Europe. It does not account for environmental impacts or geopolitical risks associated with the routes. Additionally, it focuses solely on the container shipping segment, excluding other types of maritime transport. These limitations suggest areas for further research to develop a more comprehensive understanding of the broader implications of Suez Canal disruptions on global shipping logistics.