Sisi's Suez dreams sink after drop in oil prices

Sisi's Suez dreams sink after drop in oil prices
Cairo's plan to double revenue with the expansion of the Suez Canal looks under threat as new revelations show vessels avoiding the high-price waterway.
3 min read
27 February, 2016
Egypt's waterway is a passage for eight percent of global shipping traffic [Getty]
Shipping vessels are opting for the longer route around Africa as opposed to the shortcut through the Suez canal, due to the fall in oil prices, it has emerged.

Cargo ships delivering containers across the world are taking advantage of the latest drop in oil prices by avoiding the Suez Canal - despite it being the only direct means between Europe and Asia.

A report by SeaIntel Maritime Analysis, a leading market intelligence provider, shows 115 vessels deployed in the last quarter of 2015 manoeuvred around the Cape of Good Hope on the southern tip of Africa instead of following the usual route through Egypt's Suez Canal.

"Normally, 78 of those voyages would have gone through the Suez Canal, and as 53 of the voyages were in 2015, it would have meant that the number of container vessel passing the Suez Canal in 2015 would 'only' have decreased by 1.9 percent year-on-year, instead of the reported 2.8 percent. The other 37 vessels would normally have passed through the Panama Canal," the report said.

The plunging price of oil, which has fallen more than 70 per cent since June 2014, has been identified as the cause for the ships' diversion onto the irregular route.

"For many services it is cheaper to sail south of Africa on the backhaul than to use the canal routings," the report said, adding that Suez was facing a significant challenge.

Ships sailing from Asia to Europe and vice versa generally travel some 6,400 nautical miles (12,000km) over a period of 14 days when passing through the Suez Canal. As it is deemed a "high-risk" area by global insurance analysts, insurance and specialist piloting fees raise the cost of traversing the canal to eye-watering levels.

Those selecting the Cape of Good Hope route travel an extra 8,900km over a period of 24 days, however the cheap price of an oil barrel may be making the longer journey worthwhile for some ships.

The vital trade waterway is a passage for eight percent of global shipping traffic, and made $5.36 billion in 2015 despite a dramatic drop in September's revenue.

Vessels that pass through pay an average of $251,000 per ship during the 12-16 hours transit at the canal, but with the price of a barrel at just $30, some international shipping corporations are finding it more economical to accept the time delay and go the long way round.

The news dampens Egypt's ambitious dreams to double the canal's income within seven years, after President Abdel Fattah al-Sisi raised $8billion in funds from his own people to launch a major extension project.

Despite its close proximity to militant groups in Sinai, the former military chief boasted the expansion would boost Egypt's economic situation while bringing stability and prosperity to the country.

But the exploits of armed groups have rocked the region in recent years, with militants on Egypt's Sinai peninsula declaring their allegiance with to the Islamic State group.

Hundreds of government soldiers as well as police officers have been killed in the past two years and an Egyptian navy vessel was hit when IS-linked militants launched a rocket last summer.

Despite this, Egyptian authorities maintain there is no threat to ships passing through the strategic canal.