Trouble in Egypt Could Raise Shipping Costs Through Suez Canal

Image via Flickr by Official U.S. Navy Imagery

Supply chains dependent on shipping between Europe and Asia could see even higher costs in the coming months. The government in Cairo is seeking ways to increase revenues. Revenues have fallen recently due to a slump in Egypt’s tourist industry and other factors. As President Mohamed Mursi and officials seek a loan from the International Monetary Fund, they’re looking into raising surcharges to make up for the short-term loses.

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In May, the Suez Canal Authority raised tolls to use the 120-mile canal between 2 and 5 percent. This followed the 3 percent rate hike that occurred in March. According to a spokesperson for the Authority, no further rate hikes were expected before the beginning of next year. However, Michael Frodl of the U.S. based consulting firm C-Level Maritime Risks says the recent rate hikes won’t make up for Egypt’s revenue loses, and we could see another toll rate hike by the end of this year, or even immediately.

In recent years, tolls to pass through the canal have generated approximately $5 billion per year. However, this revenue is falling due to less trade between Asia and Europe and shippers using larger ships to save costs. Currently, a standard container ship carrying ordinary consumer goods pays about $1.2 million for a return trip, which amounts to about one-quarter of the total costs of a voyage between Asia and Europe.

Consultants believe the Egyptian government will also consider raising other surcharges as money becomes tighter. Some surcharges could include increasing ship inspections to check for seaworthiness, boosting checks of security teams on board the ships, and checking for weapons aboard ships.

Egypt’s government has been in a financial crisis since the overthrow of Hosni Mubarak in 2011. Tourism is suffering due to traveler fears. Egypt’s shipping industry is in the fifth consecutive year of its worst slump in recorded history, according to J. Peter Pham of the Atlantic Council, a U.S. based think tank. [/show_to]

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