Drewry: New Suez Canal Revenue Projections Unfounded

The recently inaugurated New Suez Canal will improve capacity, transit times and reduce delays, not least because it will likely be used by far fewer vessels than expected by its sponsors, according to Drewry Shipping Consultants.

The Suez Canal Authority (SCA) estimates that 8% of the world’s maritime traffic passes through its canal and believes that more will come now that a second passage has been added. It expects the New Suez Canal will help to nearly double the average number of vessels transiting per day from 49 to 97 and more than double the revenue to USD 13.2 billion within 10 years.

Drewry says it cannot see how the ambitious short-term projections can be met. The SCA’s net tonnage and tolls have been broadly flat for the past four years and have only just reached the pre-financial crisis levels of 2008. To achieve their ambitious targets, the SCA would somehow need to see toll revenue grow at around 10% yearly, when the outlook for the shipping is nowhere near that level.

The SCA’s projections are not cargo sector specific and appear to be based on assumed increased vessel transits (by all types of ship) multiplied by vessel tolls. Whether the calculation is based on the current tariff or some future tariff is also unknown, says Drewry.

Looking at the container shipping sector, Drewry says that the number of container ships sailing through the Suez Canal has barely changed in the past three years – the 2014 sum of 6,129 ships is some 2,000 down on the 2008 peak – because carriers have preferred to invest in larger ships, meaning that more cargo is consolidated into fewer ships and services.

This is especially true for the Asia-Europe trades (which accounts for approximately two-thirds of all Suez Canal traffic in teu) where the average size of ship for North European loops has grown by around 25% in two years at the same time as the number of weekly services has reduced from 24 to 21. The consolidation of Asia-Europe container services between four mega-alliances goes some way to explaining why the Suez Canal’s daily ship transiting average has dropped from a peak of 58 ships per day in 2008 to 47 ships last year, Drewry says.

The direction of the Asia-Europe container trade growth will therefore be one of the key factors that will drive Suez tonnage and revenue, more so than the size or depth of the canal. The vessel waiting/transit times and the level of tolls, whatever they will be, are just a couple of relatively small, micro-level factors that will influence trade flows. Most of the factors are macro-level ones that the SCA cannot really influence.

Drewry says that given prospect of much slower growth in international trade following the end of the China export boom of the last 15 years and given changes in energy policy away from oil, the Egyptian Government should not expect the additional capacity of the canal to fill up quickly. It must be a long-term game.