Vessels willing to go the distance to avoid Suez canal tariffs

The new Suez Canal is feeling the pain of low oil prices, but authorities say major development plans associated with the canal will not be affected by a temporary decline in traffic.

On Feb. 24, Egyptian Council of Ministers President Sherif Ismail inaugurated the new side channel of East Port Said. Suez Canal Authority chief Adm. Mohab Mamish emphasized the channel’s importance in facilitating ships’ passage to and from the port, and thus its importance to the Suez Canal Area Development Project, which includes the development of six ports.

The channel in the Mediterranean and Red Sea is 9.5 kilometers (6 miles) long and 18 meters (60 feet) deep and was dredged over three months.

In conjunction with the channel’s inauguration, SeaIntel Maritime Analysis issued a report confirming that since October, 115 cargo vessels sailing from Asia to northern Europe and the US East Coast chose to take the long way home. The vessels sailed around South Africa on their return journey, skipping the Suez and Panama canals. In light of the global oil slump, vessels can afford to take the scenic route and avoid costly canal tariffs.

The report called the route shift “a bad sign for the Panama and Suez canals,” noting the $8.5 billion Egypt just spent to expand the Suez.

Mamish responded to the report by saying, “The Suez Canal is the main artery of global trade traffic; an alternative route cannot deprive the canal of its undisputed international prestige.”

He added, “Traffic in the Suez Canal during 2015 increased by 2% compared with 2014.”

Egypt opened the “new Suez Canal” in August, aiming to reduce navigation time for ships to 11 hours from about 18-22 hours and cut vessels’ wait time to three hours from a previous delay of eight to 11 hours.

The SeaIntel report stressed that vessels’ primary objective is not to reduce navigation time, but to reduce the cost of the journey.

Abdul Nabi Abdul Muttalib, undersecretary of the Egyptian Ministry of Trade and Industry, told Al-Monitor that there is more to the story.

He said, “The Suez Canal Area must be developed, since it [eventually] may save Egypt from the repercussions of an oil price slump or a world trade recession.”

Muttalib explained his vision, saying, “The East Port Said canal is a step in the area development project, which will attract at least $100 billion worth of investments. This will also achieve an annual profit of about $20 billion and will provide 1 million jobs, since the area development project aims to establish industrial, agricultural and logistical clusters.

“The return generated by these projects will exceed by far the total proceeds of the ships crossing over the Suez Canal, which are linked to the volatile trade activity.”

The Egyptian prime minister attended the side channel ceremony, but the turnout was significantly lower than the canal’s official launch, which was attended by the French president and several Arab leaders. Egyptian Naval Academy adviser Abdel Wahab Kamel believes there is no room for comparison between the two events, since the Port Said channel is 6 miles long, while the expansion of the Suez Canal reached 23 miles.

Like Muttalib, Kamel emphasized that the canal project’s success shouldn’t be judged on traffic. “The project must go on since it will provide significant job opportunities for young people and will promote the establishment of factories,” he told Al-Monitor.

He also stressed the importance of the channel.

“The channel allows the vessels to enter directly to the port of East Port Said without waiting for the vessels transiting in the opposite direction by providing an independent shipping lane, which saves time and does not disrupt work at the port,” he said.

The plan for the Suez Canal Area Development Project is not new. Former Egyptian Minister of Housing Hasballah Kafrawi came up with the idea in the 1970s. The project, however, only saw the light of day when President Abdel Fattah al-Sisi decided to implement it.

Nevertheless, questions remain about the current feasibility of the project in light of the wobbling global economy and instability in the Middle East.

Source: Al-Monitor