Tough times ahead for Suez Canal
Egypt spent $8 billion two years ago to dig an additional channel in the Suez Canal. Five of the world’s largest shipping companies said they would move their operations away.
Big blow. A cargo ship passes through the new Suez Canal in Ismailia (Reuters)
2017/04/02 Issue: 100 Page: 21
The Arab Weekly
Cairo - Five of the world’s largest shipping companies said they would move their operations to ports in Greece, Sudan and Israel because of the Egyptian Transport Ministry’s decision to raise shipping, cargo handling and storage fees in six ports operated by the Suez Canal Authority.
Independent estimates said the five companies represent almost 60% of all shipping activities in the six ports. Losing their business would be an irreversible blow to the Suez Canal region, maritime transport experts said.
Officials at the Suez Canal Authority and the Suez Canal Economic Zone Authority, which runs all four economic zones in the Suez Canal region, expressed alarm by the decision by NYK Group, Mol Shipping Line, Yang Ming Marine Transport Corporation, the K Line and Evergreen Marine Corporation to suspend activities. NYK and Mol Shipping are from Japan while Yang Ming Transport and Evergreen Marine are from Taiwan and the K Line is a South Korean company.
“The withdrawal of the five companies will inevitably affect Suez Canal revenues,” said Hani al-Nadi, the head of the international relations section at the Suez Canal Authority. “It will also significantly affect shipping activities at the ports operated by the Suez Canal Authority.”
Suez Canal revenues were $375.8 million and 1,286 ships crossed the waterway in February, compared to revenues of $401.4 million from 1,359 ships making the transit in February 2016, the Suez Canal Authority said.
“Higher service fees mean that shipping companies using the ports will automatically seek alternatives,” said economist Rashad Abdo, director of Cairo think-tank the Egyptian Forum for Economic and Strategic Studies. “This is particularly true as rival ports in the region offer the same services for lower prices.”
Beyond what Abdo described as an “uncalculated” Transport Ministry move to raise service fees at the ports of the Suez Canal is Egypt’s desperate need to compensate for the loss of revenues from tourism.
Ahmed Darwish, chairman of the General Authority for the Suez Canal Economic Zone, said there was “deep concern” over the five international shipping companies’ suspending their activities.
“This decision will have a negative effect on the volume of activity in the ports,” Darwish said. “Apart from affecting revenues, this decision will affect investments in the Suez Canal region in general.”
Egypt spent $8 billion two years ago to dig an additional channel in the Suez Canal, making two-way transits possible for the first time.
The government hopes to turn the canal’s banks into an international investment magnet for the shipbuilding, ship refuelling, maintenance and logistics sectors. The aspirations rely on intense traffic in the canal and its ports.
Although the five shipping lines’ withdrawal could be temporary, Darwish said he feared it could lead to additional withdrawals.
He said he was in constant contact with Transport Ministry officials and the Suez Canal Authority to contain the crisis. Nonetheless, Darwish said the ministry was unlikely to reverse the increased service fees.
Nadi said high port service fees jeopardise the business of maritime lines using Suez Canal ports and create a competitive disadvantage with lines that use rival ports.
“The Transport Ministry needs to reconsider its decision to raise port service fees for the best interests of our clients,” Nadi said. “The reversal of this decision will also serve the ports’ best interests because it will keep their competitive edge against rival ports intact.”