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Egypt’s Suez Canal and Global Challenges on Transportation and Logistic for Trade will be discussed in D-8 Working Group TLT 2009

October 29, 2008 by D-8 Secretariat

As though it hadn’t reaped enough victims, the current global financial crisis could seriously hit the Suez Canal, one of the world’s most vital waterways.

The canal is also an important source of foreign currency for Egypt, along with remittances from Egyptians living abroad, tourism, and oil and gas exports.

“As the global economy heads downwards, export-related activities including shipping business will follow,” said Ahmed El-Naggar, chief editor of Al-Ahram Economic Report. “It is expected that the Suez Canal, with its reliance on international trade, will see the impact of the crisis on its revenues.”

According to records, Egypt’s revenue from the canal rose by 23.3 per cent in the first eight months of 2008 to $3.632 billion. Revenues in the first eight months of 2007 stood at $2.945 billion. Revenues in August alone stood at a monthly record of $504.5 million. The number of vessels passing through the waterway rose to 1,993 in August from 1,854 in July and 1,755 in August of the previous year, the canal authority said.

Canal officials say that growth in revenue was due to a growth in world trade, high oil prices and high shipping rates, rendering the Suez Canal a more attractive option on some routes. “As financial turmoil spreads from the US and Europe, shipping rates have plunged to a two-year low forcing predictions to surface by shipping firms that the gloomy outlook will persist,” explained El-Naggar.

The Baltic Dry Index (BDI), a measure of commodity-shipping rates, fell by 9.4 per cent or 261 points last Thursday to 2,503, the lowest point since June 2006, when the index was at 2,478. So far this year, the index has dropped by 73 per cent from a peak of 11,930 points seen four months ago. Bearing all this in mind shipping firms are bracing themselves for the worst, especially considering the fact that the EU is well-immersed in the global credit crunch. The crisis will not stop there. A market strategist speaking on condition of anonymity believes Far Eastern exports will be under pressure next year as a result of the global economic slowdown. “The index is expected to drop continuously, and the effects of this drop are global,” he noted. As if to prove his point many international shipping firms saw their share prices nose- dive as the main index plunged by almost 10 per cent to a five-year low. Meanwhile, stock analysts and ship operators say the BDI might decline further over the rest of the year as exports have begun to show signs of slowing down. The lowest BDI was seen in 2005 at 1,747 points.

The fact that world trade depends mainly on cheaper sea shipping highlights the seriousness of the threat encumbered by international waterways today. Still, so far at least, canal officials have affirmed that no impact from the financial crisis has been noted. “For now, we haven’t detected any problems with the shipping route between both Far Eastern and Chinese harbours, through the Suez Canal and US harbours,” said Mohamed Emara, Suez Canal operations director.

However, Emara warned it was too early to talk about the impact of the financial crisis on Suez Canal revenues. “The canal authority continually carries out studies while following up with international world trade traffic and its influence on traffic through the waterway. A specialised pricing committee is commissioned to study the impact of any problem related to international world trade and its effects on the Suez Canal pricing system and revenues,” Emara explained. “Let’s agree that the world cannot live without trade, which is vital for all peoples and nations. We hope that the crisis will be over sooner rather than later.”

The credit crunch, meanwhile, is not the only challenge threatening the old waterway. There is growing concern from the spread of piracy off the coast of Somalia in the Gulf of Aden. This gulf commands access to the southern entrance of the Suez Canal and lies on one of the world’s most important trade routes.

According to figures compiled by the International Maritime Bureau, some 16,000 ships and around 30 per cent of the world’s oil transits through it each year. There have already been more than 60 pirate attacks off the Somali coast and in the Gulf of Aden so far this year — more than twice last year’s total.

UK-based think tank Chatham House noted in a recent report that insurance premiums for shipping through the Gulf of Aden have increased tenfold. The combined danger and cost, it said, could “mean that shipping could be forced to avoid the Gulf of Aden and the Suez Canal, and divert around the Cape of Good Hope.”

European governments called for the establishment of an anti-piracy taskforce to help protect the lawless sea lanes off East Africa.

In line with this issue, D-8 Organization was invited by Turkish Minister, Kursad Tuzmen, to attend the “Foreign Trade Logistics Conference” which was held in Mersin/Turkey on October 14-15, 2008. D-8 Organization will arrange meeting to set up Working Group on Transport dan Logistic in 2009, to seek solution to diverse issues related to transport and logistic faced in the world trade sector, such as the concern that has been experienced by Egypt now. “We hope that this step can facilitate improvement of our intra-trade records, which now alread $60 billions and set to increase to $150 billions within 10 years ahead,” said Esen Gonen, D-8 Economist in her office on Monday.

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