Egypt: higher Suez Canal tolls may decrease business

CAIRO, Egypt — The Suez Canal Authority (SCA) in Egypt announced it is raising tolls for ships using the 120-mile passageway between Asia and Europe, raising concerns that the higher cost will lead shipping companies to find alternative routes.

This would be a problem for Cairo, since international traffic in the canal generates about $5 billion a year for Egypt and boosts local employment.

Because the Suez Canal is one of Egypt’s top foreign currency earners, a significant decline in the waterway’s revenue from international maritime traffic is likely to deal another serious blow to the economy.

Strapped for cash as other hard currency earnings, including from tourism, take a dive, the government decision to raise tolls in the Suez is aimed at boosting revenue for food imports and its massive subsidy bill. The government faces an increasingly insurmountable budget crisis as it angles to secure funding from the International Monetary Fund.

The toll increase itself is not that substantial, and does not yet surpass the high cost of fuel required to traverse alternative routes from Europe to Asia. But coupled with the increasing costs due to delays, as well as piracy just outside the canal, the price hike will likely give shipping companies reason to consider avoiding the Suez.

Last month, the Suez Canal town of Port Said virtually shut-down in a city-wide civil disobedience campaign aimed at pressuring President Mohamed Morsi. While shipping traffic was not affected, ships docked at the container terminal faced delays as port workers went on strike, refusing to load or unload cargo.

As Morsi’s authority erodes, particularly in the areas along the canal, the likelihood it will continue to see a decline in Suez revenues increases.

SCA will raise tolls from 2 to 5 percent starting May 1, following a 3 percent toll hike in March 2012, Reuters reported.

According to Reuters:

A standard container ship bringing consumer goods on that route pays around $1 million in tolls for a return trip through the canal, representing around a quarter of costs for such a voyage.

One European ship owner told Reuters: "Everything is going up, even in this downturn, and we also now have to hire armed private security guards. So it all adds up. Other alternatives may not look that far off."

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Maersk Line, the world’s biggest container shipping company, announced earlier this month that it would stop using the Panama Canal to travel from Asia to the east coast of the United States on April 7 because fees for sailing through the South American canal had tripled over the past five years, Bloomberg News reported. Maersk said it would save money by sending goods on fewer but bigger ships through the Suez Canal, even with the higher tolls.

Still, a spokesman for AP Moller-Maersk told Reuters, the company was concerned by unrest in Egypt. "Our operations in the container terminal in Port Said have suffered numerous delays because of the local situation, and this is increasing the costs of doing business,” he said.