THE impact of the oil slump grows wider - oil prices are now so low that shipping companies on the Europe-Asia route are finding it more economical to circumnavigate the southern tip of Africa, than pay the hundreds of thousands of dollars in transit fees through the much shorter Suez Canal.

Essentially, it makes more business sense to sail the longer distance – even though the Suez Canal shortens the Europe Asia trade route by at least 9,000 km – and burn more fuel by increasing speeds.

With oil touching $30 a barrel, a recent analysis by SeaIntel, a maritime monitoring group suggests that if shippers can accept an extra week of transit time by sailing south of Africa, it would save them an average of $17.7 million a year per vessel, in transit fees.

According to the analysts the Suez Canal would need to reduce fees by around 50% - and the Panama Canal which similarly affected by 30% - for crossing to be commercially viable for long-haul ships.

That’s bad news for Egypt, which spent $8 billion on expanding the Suez Canal, opened with much fanfare last year. The expansion, accomplished in a record one year, was intended to reduce waiting times from 18 hours to 11 hours. Authorities said they expected canal revenues to more than double from the annual $5.5 billion in 2014 to $13 billion by 2023.

Nationalist prestige

But all this is now looking dicey. The expansion itself was criticised by some as lacking in fundamental business sense, and driven more by President Abdel Fatah al-Sisi’s need to project nationalist prestige.

Prior to the expansion, gridlock along the canal had actually lessened in recent years: The number of ships using the Suez is 20% lower than before 2008, says this article by Business Insider.

For one week in January, global markets were spooked when it was reported that for “the first time in known history”, not one cargo ship was in-transit in the North Atlantic between Europe and North America. The inference was instant: that trade between the world’s two advanced economic regions is at best flagging, and at worst, non-existent. 

Similarly, a key shipping index has all but collapsed: The Baltic Dry Index measures the cost of moving major raw materials, such as metals, coal, iron ore and grain by major sea routes on four types of carriers, graded by capacity. 

Published daily since 1985, in August it begun its precipitous decline after Chinese economic data spooked world markets. It has been plummeting: in May 2008 it reached its highest ever level at 11,793 points, on January 13, 2016 it came in at a record low of 394 points, a near-97% drop.

Look at:

 https://magic.piktochart.com/embed/11766448-suez-shipping-route

Even without the oil price woes, traffic would have had to increase 9% for the Suez canal expansion to deliver on its economic benefits. So far, receipts have actually dipped from $462 million in August 2015 to $449 million in October 2015, reflecting the chill in the global economy, influenced by the slowdown in China and weak commodity and oil prices.

There might be a bump in shipping volumes in the next few years, as oil and gas deposits discovered in Tanzania, Mozambique, Kenya and Uganda move into commercialisation. But with oil prices scraping the bottom of the barrel, for now it’s wait and see.

The low oil prices are also influencing a change in strategy of pirates in the Gulf of Guinea. Until last year, pirates off the West African coast were known for hijacking oil tankers and siphoning off the crude oil, to be refined later at informal, artisanal refineries on shore, and sold back into the local black market.

Moving into kidnappings

But since January, there has been a notable uptick in the number of incidents of kidnapping incidents, suggesting that pirates are giving up on oil cargo theft and instead started kidnapping crew members for ransom, UK-owned risk management solutions provider Protection Group International (PGI) said.

The group said that in January there were four recorded attacks on vessels in the area involving kidnapping, a significant increase compared to one per month from October to December 2015.

There  were also no reports of major oil cargo thefts since October 2015, which underscores the long-term decline in hijackings in the Gulf of Guinea over the past 18 months.

The Nigerian government’s crackdown on illicit refineries in the region has contributed to the decline in theft, which has made it more difficult to process and sell stolen oil. According to security officials, the Nigeria Security and Civil Defence Corps destroyed some 106 illegal refineries in the Niger Delta in 2015.

Improved navy patrols and surveillance in the Niger Delta have also made it more difficult for criminal gangs to store and transport stolen crude, prompting many criminals to operate further out to sea – and to resort to kidnappings for ransom instead.