ADDITIONAL costs incurred in rerouting ships from the Suez Canal via the Cape of Good Hope are likely to have a negative effect on vehicle carrier operators’ financial performance.

“Deviating around the Cape of Good Hope has increased tonne-miles and is making vessel utilisation worse, while operators are still not sure if they can recover these additional costs from their customers — it is not yet clear how the financial burden of rerouting will be passed on,” a vehicle carrier chartering broker told Lloyd’s List.

“Car production lines have not slowed down to take account of the reduction in available ships due to diversions. Most vehicle carrier capacity is tied to long-term contract shipping so it is difficult to see how carriers will pass on costs through surcharges.” 

Unlike the container sector, which was suffering from overcapacity before the Red Sea crisis, vehicle carrier operators have few options available to increase their fleets to take account for the reduction in capacity caused by the ship rerouting, which is adding up to 14 days to voyages.

Of the circa 700-strong pure car truck carrier fleet, some 170 ships are sourced from tonnage providers. Only around 20 large car and truck carriers were set to come open on the market across 2024, however, most of these are understood to have already been extended by existing charterers.

And while the newbuilding orderbook is at its highest ever, with around 180 vehicle carriers on order, the vast majority will not be delivered until 2025, through to 2027.

“The only remaining vehicle carrier newbuildings available for charter will not be delivered from the shipyards until 2026,” said the chartering broker. 

The global large car and truck carrier fleet was already operating at 100% utilisation before attacks on shipping by Yemen’s Houthi rebels began in November.

Daily charter rates for 6,500 car capacity vessels hit a record high in 2023 of between $65,000 and $70,000 per day for a five-year charter, while one-year time charters reached $115,000 per day in September.

“Any shipowner that has a vehicle carrier available for charter today could probably name their price.”       

Meanwhile, Oslo-headquartered Höegh Autoliners, the world’s fifth-largest operator of vehicle carriers, said today in a stock exchange announcement that the company recorded “some volume reduction” in December because of longer voyages owing to the rerouting of ships bound from Asia to Europe via the Cape of Good Hope given the ongoing situation in the Red Sea.

“The negative financial effects of rerouting vessels via Cape of Good Hope will persist into the first quarter due to reduced volumes from longer voyages and increased bunker expenses. We are systematically working to offset this by cargo repricing and possibly implementing extra charges,” noted Höegh Autoliners chief executive Andreas Enger. 

While most vehicle carriers are being diverted, Cosco, K Line, NYK Line and Grimaldi Group are continuing to use the Red Sea and Suez Canal for their vessels bound to and from northern Europe, the Mediterranean and Asia.

A chartering manager at a vehicle carrier tonnage provider told Lloyd’s List that there was a now backlog of cars building up at major car exporting ports.

“The market has been surprised by the surge in Chinese car exports, which grew 60% in 2023 versus 2022. All the big players are keen to get their hands on a ship, but there are simply no ships available.”