The Journal of Commerce / September 5, 2004
By Larry Luxner
Before the U.S. invasion of Iraq last year, Egypt's Suez Canal Authority predicted that a full-fledged war in the Middle East would disrupt regional maritime traffic, slashing canal revenues by 10% or more.
But exactly the opposite has happened in the midst of booming volumes sparked by a jump in Chinese exports to Europe and, to a much lesser extent, U.S. military cargo bound for Iraq.
In 2003, the Suez Canal generated $2.57 billion in revenues — the highest in the canal's 135-year history — as 15,634 ships transited the waterway with a combined cargo of around 548 million tons. That's up from $1.8 billion the year before.
Anil Vitharana, president of United Arab Agencies Inc. in Cranford, N.J., said Iraq-bound cargo is a "trickle" compared to the huge volumes moving in the Asia-Europe trade.
"As far as we can see, there's very little commercial cargo moving to Iraq. Whatever moves is basically military cargo, primarily on U.S.-flag vessels," said Vitharana, whose agency is a wholly owned subsidiary of Kuwait's United Arab Shipping Co.
"I think the Suez Canal is doing pretty well," he told JoC. "As ship sizes increase and volumes of East-West trade improve, the canal has to be reaping the benefits. The only other option is going around the Cape. Considering the extra transit time that would add, and the very high cost of containerships and the charter market, it wouldn't really make sense."
At present, 14% of total world trade, 26% of oil exports and 41% of the Arab world's goods and cargo pass through the Suez Canal. Average transit time is 16 hours southbound and 11 hours northbound. At least 60% of UASC's cargo transits the waterway, according to Vitharana. That cargo consists of auto parts, furniture, wastepaper, food products, literally "almost anything" the United States imports or exports.
Adm. Ahmed Ali Fadel, chief of the Suez Canal Authority, said that much of last year's higher canal revenues are a result of increased trade prior to the fighting in Iraq.
"Exporters were rushing to deliver, and importers wanted to buy their goods before anything happened," said Fadel, speaking at a recent press conference in the Egyptian city of Ismailia, where the Suez Canal Authority is headquartered.
Fadel said the number of containerships passing through the Suez Canal jumped by 58% in 2003, while the number of breakbulk vessels rose by 20.6%. Traffic increases for 2004 will likely be much more modest, though volumes and revenues are both expected to rise once again this year.
John Fossey of London-based Drewry Shipping Consultants Ltd. said the dire predictions that war in Iraq would devastate the Suez Canal never came to pass because the canal didn't close for even a day during the recent hostilities.
"If the canal had been closed, forcing liner companies to look at routes around South Africa or through the Panama Canal, it would have been a real disaster," he said.
Fossey added that what's really driving Suez Canal revenues is the booming Chinese economy and, to a lesser extent, increasing business in India and South Asia.
"Trade with China is growing at double-digit levels and has been for some time," he told JoC. "A lot of that cargo is moved to Northern Europe on containerships that transit the Suez Canal. The ships have gotten bigger, they're sailing full, therefore the revenue the canal is getting is on the increase."
Since its inauguration on Nov. 17, 1869, over a million ships have passed through the Suez Canal, with a net cargo exceeding 12 billion tons. In 1956, the famous waterway was nationalized by the Nasser regime — sparking a war involving Egypt, Israel, France and Great Britain. The canal was once again closed to international shipping in 1967 as a result of the Six-Day War. Cleared of mines and wreckage, it was reopened in 1975 and enlarged in 1980.
Since its nationalization, the Suez Canal has generated $30.5 billion in revenues for the Egyptian government.
"The Suez Canal is one of our most important sources of revenues," said Hisham el-Nakib, chief spokesman at the Egyptian Embassy in Washington. "Regardless of the situation in the Middle East, everybody knows we give the security of the Suez Canal our utmost importance. That's why it's considered one of the safest waterways in the world."
Over the years, the Suez Canal has accommodated larger and larger ships. In 1956, the canal had a draft of 34 feet, allowing the passage of cargo ships weighing no more than 30,000 tons. Today, the canal is 62 feet deep, allowing vessels as much as 190,000 tons to pass through.
But the SCA has much bigger plans.
A $441 million, three-stage project financed entirely by the Egyptian government and expected to be completed by 2010 will increase the width of the canal from 345 meters to 400 meters. The waterway will also be dredged to a depth of 72 feet, which will allow the transit of giant vessels of up to 360,000 tons, or 92% of the world's maritime transport fleet.
"The Suez Canal is a sea canal and you don't have to worry about locks, so there is no width issue," said Fossey. "You do have a draft issue, but for most ships except for fully loaded VLCCs, it's not a problem."
In order to carry out the improvements, the SCA utilizes 10 dredges moving 13,130 cubic meters of earth per hour. The authority also has 34 tugboats, up from nine in 1956.
Since 1994, the SCA has granted a 35% discount to tankers carrying liquefied natural gas. Discounts are also given to ships on long-haul voyages. In 1987, the agency set up a long-haul rebate committee to examine the cost incurred by each ship for using the canal and, comparatively, what the ship would have paid using another route; a discount is then calculated accordingly.
"A container liner service running between the Far East and the U.S. East Coast has two options: the Panama Canal or the Suez Canal," said Fossey. "A carrier will make that judgement essentially on transit time, and for destinations east of Singapore, generally speaking the Panama Canal is more competitive. For origins west of and including Singapore, the Suez Canal is more competitive."
Fadel insists that the Suez Canal remains the cheapest maritime transport alternative anywhere in the world. He also denied that the canal faces any real threat from neighboring Israel, which has proposed building a canal from the Dead Sea to the Gulf of Aqaba at a cost of some $60 billion in cooperation with Jordan.
The so-called Israeli canal, if it were to materialize, would never be able to compete with the Suez Canal, said Fadel, adding that Israel was just making "media fireworks" over a project designed not for maritime navigation but mainly to lower the Dead Sea's salinity and set up tourist spas on its banks,
The SCA has embarked on various schemes of its own in order to generate additional canal revenues.
In 1997, it formed a venture with the Arab Petroleum Pipeline Co. (APPC), which owns a 200-mile oil pipeline running from Ain al-Sukhna, on the Gulf of Suez, to Sidi Kreir, on the Mediterranean.
Under the deal with APPC (which is jointly owned by the governments of Egypt, Saudi Arabia, Kuwait, the United Arab Emirates and Qatar), oil tankers unload some of their cargo at Ain al-Sukhna to be carried by the Sumed pipeline. The ships pass through the canal and pick up their load again in Sidi Kreir.
Likewise, in March 1999, the Port Authority of New York and New Jersey signed a marketing deal with the Suez Canal Authority in an effort to lure more direct shipments from Asian ports to New York harbor via the Suez Canal.
Under that agreement, both sides are working together to promote the increasingly popular "all-water route" from the Far East to New York via the Suez Canal. Currently, most Asian cargo destined for New York is shipped across the Pacific Ocean to West Coast ports, then by rail to the East Coast.