Suez Canal crisis: Economy unscathed

Safeya Mounir , Wednesday 31 Mar 2021

The temporary blockage of the Suez Canal by the Ever Given container ship is unlikely to negatively impact Egypt’s economy

Economy unscathed
Economy unscathed

More than 400 vessels had either to change routes or lie in wait when the container ship Ever Given blocked the Suez Canal for six days last week. The Panamanian vessel, one of the world’s largest, was finally freed on Monday afternoon following several failed attempts to refloat the ship and clear the canal.

Mohamed Abu Basha, a macroeconomic analyst with investment bank EFG Hermes, said he did not believe the unprecedented incident would have long-term effects. With the rise in global oil prices, the Suez Canal remains the fastest and most cost-effective route for trade in the world, he said.

The incident’s short-term effects had depended largely on the ability of the waiting vessels to sit in a queue for a longer period or take another route, Abu Basha said, adding that it was better for ships to wait in line rather than to change course to go around the Cape of Good Hope due to the expense that this would entail.

He said it was difficult to fully assess the losses the Suez Canal had incurred due to the blockage. The canal brings in between $12 and $14 million in revenues for Egypt each year, but the incident is not expected to cost the country heavily, he added.

In recent years, the world’s maritime transportation industry has resorted to using giant vessels to transfer goods, prompting Egypt to dig a new branch of the Suez Canal to accommodate heavier and bigger ships.

During the six-day blockage, foreign reports said that companies such as Ikea and Caterpillar had been mulling over the idea of avoiding the Suez Canal and taking the longer Cape of Good Hope route, which adds more than a week to the journey between Asia and Europe, according to the US financial service Bloomberg.

Robert Koopman, chief economist and director of the Economic Research and Statistics Division at the World Trade Organisation (WTO), said that companies might be exaggerating the long-term damages resulting from the Ever Given saga.

“Overestimating those dangers might be a mistake… The Suez situation is another test that the global economy will battle though in the weeks ahead, but will ultimately pass,” The Economic Times reported him as saying.

During the blockage, several ships had started changing course, such as the Ever Greet, the sister ship of Ever Given, also sailing under the flag of Panama and heading to Rotterdam. The Ever Greet headed for the Cape of Good Hope, much like the Pan Americas, a liquefied natural gas tanker, according to the Marine Traffic website.

The shipping group CMA CGM said on Sunday that it was diverting the course of two of its ships to go around the Cape. The container-shipping company MSC reported it had changed the course of 11 ships to resume trade movement in the wake of the blockage of the canal.

According to The New York Times, the trip around the Cape of Good Hope is longer and more costly, but many shipping companies had opted for it because it was unknown when the Suez Canal would be unblocked.

Ten oil tankers and container ships, including some owned by Cheniere Energy and Shell, had changed course, fearing that the crisis might extend for longer, the US news outlet CNBC cited a spokesman of Marine Traffic as saying.

Egyptian websites reported that a number of exporters had said the canal blockage could affect Egyptian exporters and maritime activity temporarily. Production materials could arrive later than scheduled, which would result in stalled production lines, particularly as a large portion of such materials comes from China, the exporters said.

Meanwhile, the credit-ratings agency Moody’s said it was unlikely that the temporary suspension of navigation in the Suez Canal would affect Egypt’s balance of payments. It said that Suez Canal revenues had made up two per cent of Egypt’s GDP before the coronavirus pandemic, decreasing to 1.3 per cent following it.

Hani Tawfik, head of Egypt’s Direct Investment Association, said the temporary halt in navigation in the Suez Canal had been a major incident, given that 20,000 ships cross the canal annually. The last time navigation was suspended in the Suez Canal was in 1967, Tawfik noted.

The alternatives to the Suez Canal are all financially and commercially more costly for world trade, and the incident is unlikely to affect Egypt’s economy unless a similar incident re-occurs, he added.

The Suez Canal Authority was continuously expanding the canal to keep up with the larger size of vessels, Tawfik said, adding that it should refuse the passage of vessels that could cause problems crossing the canal.

*A version of this article appears in print in the 1 April, 2021 edition of Al-Ahram Weekly


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