Cheap Oil Has Ships Shunning Suez

March 3rd, 2016 by

Aircraft carrier USS America (CV-66) in the Suez Canal

Aircraft carrier USS America (CV-66) in the Suez Canal

The global oil glut is threatening the stability of Egypt, but not for the reasons you may think. Rock-bottom prices for fuel oil has shipping companies shunning the Suez Canal, and saving money by making the trip to Europe around the southern tip of Africa. This is putting significant economic and political pressure on the government of Abdel Fattah el-Sisi, which came to power in a military coup.

The typical transit fee for the Suez Canal is $465,000 for a cargo ship or oil tanker. Cheap fuel prices means that choosing to sail around South Africa instead of using the Canal on the Asia to Europe route saves the shipping company $235,000 per ship. Ships can even increase their speed to make up some of the 10-day difference between the two routes and still realize substantial savings. This is an especially attractive option for return trips to Asia.

The Suez Canal is Egypt’s main source of foreign currency.┬áLast year government-owned Canal contributed $5.5 billion into an economy still engulfed in turmoil. The income from the Canal is even more important today. Instability has stunted international development, leaving the country struggling to pay for imports of food and fuel.

Maersk-Container-ship-Suez

Maersk container ship in the Suez Canal

That revenue is shrinking. Between October and February, 115 fewer ships transited the Suez Canal, opting for the route around the Cape of Good Hope. Traffic has seen a year-over-year drop every month since last July. January numbers show that transits by bulk cargo ships plummeted. There were 55% fewer ships hauling fertilizer, 51% fewer ore and base metal shipments, and 32% fewer coal and coke shipments through the Canal in January, compared to last year.

These troubles come in the wake of a controversial $8.2 billion expansion of the Suez Canal, which allows two-way traffic over a large portion of the canal. This cuts the transit time from 18 hours to 11 hours, and allows larger ships to use the Canal. But for shipping companies riding high on cheap fuel, such an improvement hardly merits spending an extra quarter million dollars or so per trip.

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Egypt’s counterpart in the Western Hemisphere is in much the same boat. Work on an $8 billion

Container ship in a lock of the Panama Canal

Container ship in a lock of the Panama Canal

expansion of the Panama Canal is almost two years late. The government felt compelled to enlarge the Canal, which is much smaller than the Suez Canal, in order to serve larger ships.

Construction problems and conflict between the Panamanian government and the contractor has pushed the completion date to the end of June. The Central American republic faces the same problems as its Arab associate: How to pay for these expansions at a time when revenue is falling?

 

 

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