Is the just completed Suez improvement project a prayer as in the expectation: “build it and they will come”?
The Grand Opening this week in Egypt….
The upgraded Suez canal is actually a new 35-kilometer channel and 37 kilometers of widening and deepening of the original channel. The improvements allow two-way traffic and reduces transit time to 11 hours from 18, according to the canal operator. The expansion does not allow larger vessels to use the route. It has been improved despite the fact that Suez has yet to fully recover since the global financial crisis caused shipping to plummet in 2009.
Although total tonnage has increased, the number of vessels using the canal remains 20 percent below its 2008 level — according to data compiled by Bloomberg. These statistics reflect slower global trade growth, which the International Monetary Fund expects to average 3.4 percent in the period 2007-2016.
In an earlier period 1997 to 2006, global trade had grown at about 7 percent a year. As an illustration of the slower growth, the Baltic Dry Index, which measures rates for shipping iron ore, coal and grain is about 90 percent below its all-time high of 11,793 reached in 2008.
Will the Government obtain a Fair Return on the Suez upgrade investments?
The government hasn’t made public viability studies to show how it will gain a return on its 64 billion Egyptian pound ($8.2 billion) investment. The claim is that this expansion will meet future demand, with ship traffic expected to double to 97 vessels a day by 2023. That according to Mohab Mameesh, head of the Suez Canal Authority.
They hope to increase the toll revenues from the $5.5 billion collected in 2014 to as much as $13 billion by year 2023. “By creating a second lane of the canal we are able to reduce waiting times, which reduces fuel expenditures and costs, with no increase in our toll fees,” he said in a response to Bloomberg.
Is that likely? Global trade volume would need to rise by around 9 percent a year for Suez to reach its traffic goal, Capital Economics says in a report.. It describes that as “unlikely to say the least.”
For very large ships, the Suez Canal can save about 42% of the sailing distance between Rotterdam and the Persian Gulf versus the longer around Africa route.