Egypt’s balance of payments is not expected to see a significant disruption as a result of the Suez Canal blockage incident, Moody’s announced on Monday.
Moody’s rates Egypt at B2 stable in credit rating terms.
Suez Canal receipts amounted to almost 2 percent of the country’s GDP on average prior to the COVID-19 crisis, providing a significant contribution to Egypt’s total current account receipts, according to Moody’s.
On the other hand, Moody’s said that despite declining to 1.3 percent of GDP during the acute phase of the pandemic, Suez Canal receipts have proven more resilient than other cross-border services such as travel receipts.
“A temporary disruption will not materially change our expectation of a return to pre-crisis canal receipts, as global trade recovers. Despite the canal’s importance, especially for hydrocarbon products transported by sea, we expect that other Suez Canal-reliant exporters, including oil-exporting countries in the Middle East, are unlikely to be affected in the absence of an extended disruption,” according to Moody’s expectations.
On the global trade level, the incident is projected to temporarily affect the global container throughput volume by 10 to 15 percent, according to Moody’s estimations.
It added that the repercussions of delays for global supply chains would, under normal circumstances, are “not a big issue.”
However, very high consumer and industrial demand, a global shortage of container capacity, and low service reliability from global container shipping companies have already caused long delays and made supply chains highly vulnerable to even the smallest of external shocks, according to Moody’s.
“Accordingly, the timing of such a blockage could not have been worse”, said Moody’s.
As a result of the ‘Ever Given’ container ship incident, ships that will decide to use the longer route around the Cape of Good Hope instead will add around 10 days to their journey compared to the main route that includes the Suez Canal, Moody’s estimated.
Moody’s also expected that the ongoing disruption of maritime traffic will affect individual sectors severely because of the uncertainty over how long the canal will be blocked.
Moreover, Moody’s said that Europe's manufacturing industry and auto industry, as well as auto suppliers will be affected as well.
Moody’s rates such sectors at negative credit.
“This is because they operate “just-in-time” supply chains, meaning they do not stockpile parts and only have enough on hand for a short period, and source components from Asian manufacturers,” said Moody’s.
Moody’s also noted that even if the situation is resolved quickly, port congestion and further delays to an already constrained supply chain are inevitable.
In addition, alternative modes of transportation are more or less out of the question, because airfreight capacity is already tight owing to COVID-19, and rail transportation between China and Europe is very limited, according to Moody’s.
For carriers, diverting their vessels around Africa instead of going through the Suez Canal will increase fuel costs, according to Moody’s
However, spot freight rates are expected to increase or, at least, stop decreasing from their currently very high levels.
In this regard, Moody’s cited that around 50 percent of the Asia-Europe volume is shipped at contracted rates that offer little flexibility to offset increased costs due to external events.
On 23 March, the Ever Given, a container ship, ran aground in the Suez Canal, blocking maritime movement and global trade.
On Monday morning, the Ever Given started to float successfully after the ship had responded to the latest tugging manoeuvres, Osama Rabie, the chairman of the Suez Canal Authority said.
The vessel’s capacity is 20,100 twenty-foot equivalent units (TEUs), spanning 399 metres long and 59 metres wide.
The Suez Canal connects the Mediterranean to the Red Sea and is a part of the Asia-Europe trade lane, providing the shortest sea link between the two continents.