Shippers consider alternatives to Suez as Egypt hikes tolls

Shippers to reroute as Suez tolls increase

Shipping companies are considering rerouting around the Suez Canal after Egypt announced plans to increase tolls for the waterway in a bid to tackle its ongoing economic crisis.

The Suez Canal Authority (SCA) plans to raise tolls by 2 to 5 percent from May 1, having already raised them 3 percent in March 2012.

“The effect of these increases will be to give a spur to those owners who may already be considering the Cape [of Good Hope] route as a serious alternative,” said Peter Hinchliffe, secretary general of the International Chamber of Shipping, an association that represents over 80 percent of the world’s merchant fleet.

The government of Egypt’s President Mohammed Mursi has been grappling with sliding currency reserves, decreasing tourism, a soaring budget deficit and often violent street protests, which has put Egypt’s economy in crisis since 2011.

Tolls paid by ships using the canal bring in around $5 billion a year, but a slowdown in trade on the major Asia-to-Europe route due to global economic turmoil has hit transits, while pirate activity in the region has also had an impact.

Several ship owners contacted by Reuters said routing around the Cape was a consideration, given the possible cost of any delays caused by protests within Egypt.

These add to security costs for ships heading to or from the canal, which also have to pass through areas plagued by Somali pirates in the Gulf of Aden and Indian Ocean.

“Everything is going up, even in this downturn, and we also now have to hire armed private security guards. So it all adds up,” one European ship owner said. “Other alternatives may not look that far off, and it will be a problem for Egypt.”

Unrest has been rife in cities along the canal, particularly at its northern entrance in Port Said, though traffic through the waterway has so far not been affected.

Danish oil and shipping group A.P. Moller-Maersk said it was concerned by the growing unrest in the area, which is affecting wider trade with Egypt.

“Our operations in the container terminal in Port Said have suffered numerous delays because of the local situation, and this is increasing the costs of doing business,” a Maersk spokesman said, adding the group had no current plans to change its arrangements.

“The threat of Somali piracy has had to have had a depressing effect on Suez canal transits. The uncertainty and insecurity of transiting the Gulf of Aden is piled onto by similar concerns in Suez,” said Michael Frodl, head of U.S. consultancy C-Level Maritime Risks.

“There has been a sure but steady decline in the transits and revenues for the past couple of years for Suez. We see the decline continuing, steadily and surely - and if the fees rise and the unrest continues, it will speed things up.”

While some shipping firms are tipped to be considering an alternative route, SCA spokesman Tarek Hassanein played down fears of a loss in traffic.

“The price hike is not that big to the point that would make people leave the Suez Canal,” Mr Hassanein told Reuters.

Another factor that could encourage shippers to continue using the Suez route are high fuel costs, analysts said.

Peter Sand, chief shipping analyst with association BIMCO, said bunker fuel prices would need to be below $390 a tonne to make re-routing around the Cape viable for a standard container ship. Bunker fuel prices are currently around $650 a ton. “The massively high fuel price plays the full advantage into the hands of the Suez canal,” Mr Sand told Reuters.

The 120-mile canal is the quickest sea route between Asia and Europe, saving an estimated 15 days of journey time on average. A standard consumer goods container ship on that route pays around $1 million in tolls for a return trip through the canal.

Last Update: Thursday, 21 March 2013 KSA 18:58 - GMT 15:58