The murky waters of the "New Suez Canal" project

The murky waters of the "New Suez Canal" project
Feverish domestic media hype has promoted the newly opened Suez Canal project as a "gift to the world". However behind the coverage lie many unanswered questions.
11 min read
06 August, 2015
Many have questioned the usefulness of the new Suez Canal project [AFP]

Amidst hysteric domestic media attention and extravagant nationwide celebrations over the opening of the new Suez Canal, many question the need of such a project.

In 2014, Mohab Mamish, the head of the Suez Canal Authority announced that a new Suez Canal would be built in three years time. He was subsequently smacked down by an exuberant Egyptian President Abdel Fattah al-Sisi (at the same event) who said that it would in fact be completed in one year.  

And so it was that a "new Suez Canal" has been completed around two years before its deadline, lending it to be deemed a "miraculous" feat.

The canal is intended to dramatically increase shipping, by introducing a two-way system, and substantially increase state revenues.

However, the details remain complex and demand further investigation.  

A new canal, or an expensive bypass?

The government and much of the media states that the new canal will be 44 miles, or 72 kilometres long.

However, the new Suez Canal actually consists of a new 35 km (22 mi) long section parallel to the existing 164 kilometres (102 mi), which will allow 2-way traffic for this particular section.

There is also the deepening and expansion of a 37 km (23 mi) long section of the existing canal, which measures 120 miles.

The term "new Suez Canal" is itself is somewhat misleading and a more accurate term would be the partially expanded Suez Canal.

The Egyptian government proudly announced that the canal been completed on time, and apparently, within budget of $8 billion. Industry publication "Port Technology" had previously reported that the infrastructure cost of the new Suez project was likely to reach 15 billion dollars.

Additionally, there were early reports of difficulties.  In August 2014, Egyptian daily, al-Masry al-Youm reported worker's celebrations upon finding water at the drilling site.

However, Haitham Awad, an engineering professor at Alexandria University, told al-Monitor at the time that "the cost of drilling underwater will exceed 10 times the cost of drilling in dry lands," and that it would have been better to chose a site further away from the original canal.

There were no more reports of underwater drilling and in May, it was announced that the "dry drilling" of the canal had finished.

Due to Sissi's insistence on completion within a year, estimates are that the cost of construction, which was a twenty-four hour operation divided into three shifts doubled.

The government predicts that shipping traffic will double, and revenues will thus rise from the current $5 billion per annum to $13.5 billion dollars in 2023.

Yet the question of shipping traffic and trade increase is a complex topic that involves examining the economics and logistics of trade along the canal. 

Increasing traffic: a question of economics?

The point of the new canal is to create two-way traffic to allow ships to pass in both directions simultaneously, and will apparently double the number of ships able to pass through the canal.

However, many shipping companies are "underwhelmed".

According to statistics from the Suez Canal Authority, the average number of ships passing through Suez has consistently remained at fifty per day during the past few years.

Indeed, shipping experts question whether limited expansion would suddenly double traffic.

Andy Lane of Container Transport International Consultancy, said in February that: "There is often a perception...that if you build infrastructure it will trigger trade growth.

Trade growth is in reality however influenced by many other drivers. No doubt a canal makes the transportation of traded goods easier, faster and cheaper - it is however not the primary driver."

This means that even if the Suez canal manages to facilitate more traffic, increasing the amount of ships that would pass through is dependent on economic growth, which, in the climate of global recession, is incredibly slow.

"It's not about capacity, it all depends on trade between East and West, growth in the world economy, especially in Europe, and how the (authority) handles its fees," said Xu Zhibin, managing director for the Egyptian affiliate of China's state-owned COSCO, one of the world's top container shippers.

"It's not about capacity, it all depends on trade between East and West, growth in the world economy, and how the (authority) handles its fees"
- Xu Zhibin

In some of the largest shipping industries, such as liquefied gas (or LGP) East-Bound ships from Europe are increasingly uncommon, according to World Maritime News and analysts say they are more likely to use the Panama canal, especially seeing as it has had own expansion.

According the Suez Canal statistics, traffic grew around 74% from 2000 to 2008, collating with global economic growth rates.

Trade analyst company Argus said that "macroeconomic factors and toll levels may be far more influential in determining future shipment volumes than the introduction of two-way traffic," where "toll levels" refer to the fees that ships pay to use the canal.

One shipping analyst said that a potential hike in rates and transit fees would push ships to use the Cape route, around South Africa which, as experts have extensively discussed, could be an alternative to Suez.

This was the case in 2009, where shipping companies boycotted the Suez for a certain time in response to rising rates, using the Cape instead.

Size matters?

Even if some companies are likely to increase their shipping, which appears unlikely in the light of industy-expert's comments, there are remaining difficulties with the depth of the canal which limits the size of ships able to pass.

This is significant, as the bigger the vessel the more transport costs are reduced, due to the ability to carry more cargo at one time. 

Although the Suez Canal Authority says that vessels with a draught of up to 66 ft will be able to use the "new canal",as the extension will measure 24 ft.  However, this is somewhat misleading.

Firstly because the maximum draught of vessels using the Suez Canal fluctuates slightly due to seasons and water levels; in 2008, the maximum draft of vessels on Suez was 68 feet, according to Theo Notteboom's book on shipping logistics.

Secondly, although large ships may be able to pass along parts of the canal, they may have more difficulty because of the size of the locks. For example, larger liquid gas carriers (LNG) who might be able to use the new Suez will still be unable to pass through the points of entry.

Large oil tankers (VLCC) will still need to part discharge cargo at Ain Sukhna to carry out their journeys, before reloading at the Mediterranean tunnel, according to World Maritime News.

Jet fuel traffickers say that increased flows are unlikely, and delays have not affected their traffic, as do traders in "naphtha" - the industry term referring to a crude-oil product.

      Containers at the Suez Canal terminal [YouTube]

According to al-Araby's calculations, these fuel and liquefied gas industries account for around 25% of total tonnage carried on the canal, and make up the bulk of its international trade.

Therefore, these industries' expectations of the new canal are significant.

As well as lock sizes, the size of the main terminal in North are understood to be unchanged.

Koch-Soelyst, Commercial Chief Executive for the Suez Canal Container Terminal (SCCT), in order for the Suez Canal Terminal to grow, the company needs to build a bigger terminal and install bigger cranes, to be able to receive bigger ships.

"We will lose the competition", he was reported as saying in Ahram Online in November last year.

The SCCT handles 15% of local Egyptian trade and has a 50% market share in Egypt's container handling.

In 2014 SCCT was still requesting a deeper draft leading from the Northern entrance of the Suez Canal to the Mediterranean, as vessels operated by companies such as Maersk Line - one of the world's largest shipping companies - need a draft of 16 meters.

"We [the Northern terminal] can only receive ships that could go 15.5 meters under the water", Kock-Soelyst said.

Two-way traffic?

The new lane allowing for two-way traffic only covers part of the canal, meaning that the convoy system - that only allows ships to pass either North or South at one time - still remains.

Lars Koch-Sooelyst, told Egyptian journalists in November 2014 that the terminal should be able to handle seventy ships, rather than fifty. But it wasn't just ship-size that hapered the terminal; it was also the convoy system. "This creates inflexibility for us because we are part of the new Suez Canal," he said.

When ships are heading North, there is not enough time in-between exists for other carriers to access the terminal.

Therefore ships can only access the terminal during certain times of day when there is a break in the traffic.

A Maersk liner in Solvakia [Getty]  

Although one might think that the new Suez expansion may alleviate this problem, Koch-Soelyst said it could make it worse, as the faster flow of traffic may lessen the time intervals that ships will be able to pass.

"By 2014, we have no more capacity to sell our business to new customers", he said. "Which means Egypt will stop getting additional money out of this business."

Maersk company, the main shareholder in SCCT and one of the biggest shipping companies in the world asked the Egyptian government in 2014 to fulfil a deal made in 1998 that required the state to provide it with it with its own entrance from the Mediterranean sea that would allow ships to enter away from the convoy system.

Yet Michael Storgaard, a spokesman for Maersk Line recently said that the new Suez Canal project "was a necessity to maintain the attractiveness of the Suez Canal,"  

Even so, it appears too early to say whether Maersk will route more vessels through Suez.

The dispute between Maersk and the government in 2014, comments by Kock-Sooelyst and Stoorgard seem to contradict recent statements made by Amr al-Bibani, the general manager of Maersk Egypt, who repeated the government line.

Al-Bibani said that the new project will reduce the time spent by ships to go between Port Said and Suez from eighteen to eleven hours, as it would allow ships to move in both directions, according to al-Shorouk.

"We had a great role in convincing the Egyptian government of this project, as we are one of the largest shipping companies operating in Egypt", he said.

Whose project is it anyway?

This "new" Suez Canal is not exactly new, nor is it a canal in itself.  The project is mainly an expansion of the original canal, something that has been done several times since the Khedive of Egypt, Ismail Pasha, inaugurated the original canal in 1869 in a ceremony celebrating the modernization of Egypt.

Over a period of 10 years, thousands of low-wage workers lost their lives digging the Suez Canal, which was originally 164 kilometres long.

The new Suez Canal has also not been without its victims; according to local media, 62 families whose lands were seized in favour of the new Suez Canal project are currently waiting for court rulings on their compensation claims. In this court case, the Suez Canal Authority claims that the lands in question are located within its jurisdiction, set in 1973.

      Thousands of low-wage workers lost their lives
digging the Suez Canal [Getty]

More than 4,000 fishermen in Ismailia were also affected, as they were told not to go out fishing in the area for 20 days "for security reasons".

Since Nasser's time there have been six other expansions, with a total length of 80.5 kilometres, according to the State Information Service. The expansions were made during the rule of former Egyptian Presidents, such as Gamal Abdel Nasser, Anwar Sadat, and Hosni Mubarak.

None of the previous six expansions came with such hysterical media campaigns like the current one, if anything strengthening the cynical view that Egyptian President Abdel Fattah al-Sisi used the new expansion project as a national project to carry his name.

"We support the army and we want what is best for the country, we are patriotic, but all we want is compensation", local fishermen told newspaper al-Bedaiah.

However, in August 2014, when Sisi announced the beginning of the expansion project, al-Jazeera aired a report exposing how ousted President Mohamed Morsi was the first to announce the project during his rule.

At the time, the military rejected Morsi's proposal citing "national security concerns".

Morsi's proposal did not include the digging of a new waterway, but it did include the establishment of an international industrial region to offer logistical support and services in all port cities of the canal, namely Suez, Ismailia, and Port Said, along with North and South Sinai.

Although the project also had its critics, it corresponds to recommendations that the focus of new developments on the Suez canal should be aimed at improving existing infrastructure, focusing on ports and terminals, rather than simply creating another bypass, or extension of the canal.

Many have long recommended that Egypt encourages industry and projects, such as the new Suez Canal.

Despite the many reservations about the project, its rapid completion is testament to a large workforce at Egypt's disposal, which could also be a valuable asset in similar projects to reinvigorate Egyptian industry.

The Suez Canal is an important source of revenue for Egypt, and its symbolic nature is understandable, considering its history.

However, as extensions on the canal are lauded by the Egyptian regime, who portrayed it as Egypt's "gift to the world", and critics view the project as propaganda to cover up the darker side of the regime, it is important that questions should be asked, and answered.