Egypt’s Suez Canal feels the heat as piracy spikes in the Gulf of Aden

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This article was published 25/11/2008 (6541 days ago), so information in it may no longer be current.

CAIRO, Egypt – The Suez Canal, a vital shortcut between East and West for nearly 140 years, is facing an enormous challenge, as the scourge of Somali piracy prompts major shipping companies to seek another route.

Egypt, which is heavily dependent on the fees it charges ships to go through the canal, has expressed concern over a possible drop in income – though it says it’s hopeful an international flotilla patrolling the pirate-infested waters will be able to ensure safe passage.

“For sure it will have a bad effect” if it continues, Gen. Ahmed Fadel, head of the Suez Canal Authority, told The Associated Press on Monday at his office overlooking the canal.

At least two shipping companies have announced their vessels will take the long route around the southern tip of Africa rather than go through the canal, which requires crossing through the Gulf of Aden, scene of most pirate attacks.

The 193-kilometre canal gives a vital shortcut linking the United States and Europe with the Indian Ocean and its Asian ports. The canal runs between the Mediterranean and the Red Sea, where there have been no pirate attacks. But the only access from the Red Sea to the Indian Ocean is through the Gulf of Aden, where Somali pirates have hijacked or attacked dozens of ships.

“One or two more piracy attacks will just send an alarm, and we will find ourselves with a big problem,” said Adel Lami, chairman of Port Said Navigation Chamber, a body that represents private maritime companies on the northern tip of Suez Canal.

To avoid the Gulf of Aden, Europe’s largest shipping firm A.P. Moller-Maersk A/S said last week it was telling some of its slower ships to sail around Africa’s Cape of Good Hope, and Norwegian shipping group Odfjell SE ordered its more than 90 tankers to do the same. That means adding up to two weeks to some voyages.

Other firms, including one of the world’s largest oil tanker companies, Frontline Ltd., have said they are considering other options, including travelling around the Cape – even though such a move would extend the trip by 40 per cent.

Fadel, of the Suez Canal, played down the practicality of the South African route.

“It is not easy or simple to divert through the Cape,” he said. “It will lead to an increase in commodities transport fees to more than 30 per cent.”

In fiscal year 2008, Egypt earned $5 billion US in canal fees – up from $4.6 billion the previous year – making it the country’s third largest revenue generator after tourism and remittances from expatriate workers.

But for Egypt, a country of 76 million where 20 per cent live on just $2 a day, even a slight dip in canal revenue could have a devastating effect on the economy – especially at a time when the global economic meltdown is sure to hamper the country’s vast tourism industry.

So far, Egypt has urged the international community to strengthen its anti-piracy efforts in the Gulf of Aden, without raising the possibility of adding ships from its navy to the fight.

Even before the latest soar in piracy, the canal, which Egypt nationalized in 1956, was seeing a small decline in revenue in recent months, mostly due to a decreasing demand for shipped goods.

In September, revenues dropped slightly by about $5 million compared with August. Then in October, Suez revenue dipped even further, to $467.5 million, Fadel said.

So far this month, 61 ships have passed through the canal – one short of the monthly average, Fadel said.

To compensate, Egypt has taken a few steps to try to boost traffic through the canal, including decreasing its fees for dry cargo ships, Fadel said.

“Since we are competing with an alternative route, we are setting up a mechanism to reduce fees,” he said. “It will make it cheaper. Though revenues will be less – it is better than nothing.”