Hapag-Lloyd sees double-digit million dollar bunker bill from rerouting

On Monday the German container line became one of the first shipping firms to announce vessel diversions to avoid Red Sea attacks.

PHOTO: A Hapag-Lloyd container ship in Singapore. Hapag-Lloyd

As the year draws to a close, Hapag-Lloyd will set aside record amounts solely for bunker fuel. 

A decision to reroute vessels on the longer route around the southern tip of Africa will cost Hapag-Lloyd “a double-digit amount of million USD only for bunker fuel” in the two weeks between 18-31 December, a company representative tells ENGINE. 

This double-digit amount will be to cover the fuel costs of 25 vessels being diverted via the Cape of Good Hope, the spokesperson added.  

Attacks and diversions

Monday’s announcement came after the Hapag-Lloyd vessel Al Jasrah came under attack by Houthi militia soliders while sailing close to Yemen in the Red Sea last Friday. The Al Jasrah was momentarily in flames after the attack, but managed to sail on and is headed for Singapore, Hapag-Lloyd confirmed to ShippingWatch earlier this week.

By opting to steer clear of the Red Sea, shipping firms also opt out of transiting the Suez Canal - the fastest route between Asia and Europe.

The alternative Cape of Good Hope route is longer, which means more days at sea, and likely higher bunker consumption as firms will be encouraged to increase steaming speeds to make up some of the lost time.

Hapag-Lloyd estimates that the Cape route adds about two weeks to a voyage from Singapore to a northwest European port, and more than three weeks if the destination is in the eastern Mediterranean. Sailing to the US East Coast requires less of a diversion and will add about a week.

War risk

Hapag-Lloyd also faces higher war risk insurance premiums.

To break it down, war-risk premiums are additional surcharges shipping companies must pay when purchasing war insurance for their vessels. War insurance covers terrorist attacks, hijacking and missile attacks among others. 

High war-risk premiums can push up freight rates, Vortexa’s head of market intelligence and analysis Jay Maroo says.

Container freight rates Shanghai to Rotterdam have shot up by 16% in the past week, the latest Drewry World Container Index figures show.

For Hapag-Lloyd, the high war-risk premium will probably impact the firm’s voyage costs, the spokesperson notes, but will probably be charged from customers through higher freight rates.

Meanwhile, the list of shipping firms opting to reroute via the Cape of Good Hope continues to grow. 

By Manjula Nair  

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