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Suez rate hike risks choice of alternate route

London, February 5, 2013

The decision by Egypt's Suez Canal Authority (SCA) to raise toll fees could force ship owners, already battling a deep slump in their sector, to re-route vessels around the Cape of Good Hope, a major industry association said.

Tolls paid by ships using the strategic waterway are an important foreign currency earner for Egypt, bringing in around $5 billion a year at a time when the country faces political unrest and economic turmoil.

"Most international ship operators are trading in the worst shipping markets in living memory due to there being too many ships chasing too few cargoes," Peter Hinchliffe, secretary general of the International Chamber of Shipping (ICS), said on Monday.

"This is not the time for the SCA to be announcing increases, which for some trades seem very dramatic indeed, and which many shipowners will find impossible to pass on to their customers," said Hinchliffe, whose association represents over 80 per cent of the world's merchant fleet.

Canal officials could not be immediately be reached for comment.

The 192km Suez Canal is the quickest sea route between Asia and Europe, saving an estimated 15 days of journey time on average.

"The effect of these increases will be to give a spur to those owners who may already be considering the Cape route as a serious alternative," said Hinchliffe.

The SCA said last week it would raise fees by between 2 and 5 per cent starting on May 1. Last year tolls were raised by 3 per cent for all ships passing through the canal starting March 2012. The SCA said at the time it had not raised fees in the three previous years.

"They (Egypt) are in desperate need of funds," said Alan Fraser, Middle East analyst with security firm AKE. "Mostly because the IMF (International Monetary Fund) loan they are looking to get, they are waiting for agreement on that."

Egypt's government signed a preliminary agreement for a $4.8 billion loan from the IMF in November, but the formal signing was delayed due to political strife.

SLOW STEAMING ROUND THE CAPE

The ICS said the route around Africa via the Cape was becoming relatively less expensive as ships have resorted to slow steaming - a method where ships slow their speed to cut fuel consumption.

At the same time unrest in Egypt is causing unease.

"Recent events in Egypt... are generating concerns about the security of the canal itself," the ICS said.

Almost 60 people have been killed in violence that has flared on and off since January 24. The protests have been fuelled by anger at what activists see as President Mohamed Mursi's attempt to monopolise power, as well as a sense of social and economic malaise in Egypt.

A state of emergency remains in force in three cities near the Suez Canal that have also been the scene of protests against Mursi and the Muslim Brotherhood, the Islamist group that propelled him to power in a June election.

"We are also disappointed by the lack of consultation that preceded these (latest toll) increases. To the SCA's credit, the canal has so far continued to function smoothly," Hinchliffe added.

"We recognise that, with pressure on Egypt's tourism and its other economic problems, there is increased pressure on the SCA to maintain what is now the country's biggest source of foreign revenue." – Reuters




Tags: Egypt | London | UK | Suez Canal |

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