Challenges to and challengers of the Suez Canal

The Suez Canal revisited

The Suez Canal plays a pivotal role in today’s global container shipping network, in particularly in accommodating vessels sailing on the important Asia-Europe trade lane. Together with the Panama Canal, the Suez Canal serves as one of the oceanic canals contributing to the large concentration of shipping and port activities along the world’s maritime ‘beltway’ or equatorial route. Along this beltway we find the majority of large transhipment hubs acting as turntables in extensive regionally-based hub-andspoke networks.

Yet, in recent years the almost monopolistic position of the Suez route is being scrutinized by rising security concerns caused by piracy acts and armed robbery on vessels transiting the region, by high Suez Canal charges and by an ever-changing geography in world trade patterns. Moreover, a number of alternative allwater and land-based routes are vying for part of the cargo flows now passing through the Suez Canal.

Shippers and shipping lines are continuously re-assessing the design of their shipping and distribution networks in search of high cost efficiency, manageable risks and increased routing flexibility. This could affect the dominant position of the Suez route in the longer term.

The importance of the Suez Canal route

The Suez Canal was opened in 1869 as a man-made waterway connecting the Mediterranean Sea and the Red Sea. The canal is owned and maintained by the Suez Canal Authority (SCA), which is under the government of Egypt. However, the passage is guaranteed by the Constantinople Convention of the Suez Canal of March 1888.

Over the years the dimensions of the Canal increased in depth, width and length (see Table 1). Improvements are made to increase draft to 22m (72 feet), allowing passage of fully laden supertankers. The largest container vessels can navigate the Canal without difficulties. It is a single-lane waterway with four passing places in Ballah and in the Great Bitter Lake. Passage takes between 11 and 16 hours. Ship convoys are formed on either side of the canal to cope with the limited width of the canal. Shipping lines reserve their place in a convoy and as such want to ensure that the vessel will make it in time to the Canal’s entrance.

The Suez Canal route’s dominant function is accommodating East-West container trade between Asia and Europe. In 2008, 8,156 container vessels transited the Suez Canal, an increase of 74% compared to 2001. More than a third of all vessels using the Canal are container vessels. About 723 million tons of cargo passed via the Canal in 2008 or almost double the tonnage of 2001.

Nearly half of the cargo volume is containerized. The share of containerized cargo is still rising on the South to North direction (westbound from Asia to Europe) while it remained rather stable at 50% on the eastbound leg to Asia. Total container volumes reached an estimated 31 million TEU in 2008 compared to 20 million in 2004. Nearly 93% of these container flows are related to the Europe-Asia trade routes. North America (East Coast) – Asia trade represents about 5.3% (figures: Boston Consulting and Suez Canal Authority).
 

Suez Canal transit fees

The transit rates are established by the Suez Canal Authority (SCA). They are computed to keep the Canal transit fees attractive to shippers. In fiscal year 2008, Egypt earned US$5 billion in canal fees (US$4.6 billion in the previous year) making it Egypt’s third largest revenue generator after tourism and remittances from expatriate workers.

Container ships account for just under half of the Canal’s traffic and a slightly higher percentage of its net tonnage and revenues. Table 2 provides an estimate of the transit fees for various container vessel sizes based on rates of April 2008 (i.e. the last rate increase). The average canal transit fee per TEU (at 90% vessel utilization) amounts to US$102 for a vessel of 1000 TEU down to US$56 for the largest container vessels.

In early 2009, SCA announced an indefinite freeze on transit fees as a result of the global downturn and the Somalian piracy crisis. Suez Canal fee revenues fell to US$1.1 billion in the first quarter of fiscal year 2009/2010 compared to US$1.5 billion in the same period of the previous fiscal year (minus 24%). In early 2009, a number of shipowners started to boycott the Suez Canal because of the high transit fees. Maersk Line and the Grand Alliance were examples of shipping lines temporarily opting for the Cape route around South Africa instead of the Suez Canal route, mainly on the eastbound leg of the roundtrip.

 

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Dr. Theo Notteboom, President of ITMMA, University of Antwerp, Antwerp, Belgium & Dr. Jean-Paul Rodrigue, Hofstra University, New York, USA
Edition: Edition 51

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