The Suez Canal Authority (SCA), which manages the waterway for the Egyptian government, had anticipated that high oil prices and the boom in global shipping would lead to a fresh threshold being reached.
“We had expected that high oil prices and greater oil traffic, and the increases in charter rates, would bring a new record,” says an SCA official. “But this is also due to internal reasons. We have continued to develop the canal and have maintained a flexible pricing structure for different vessels.”
The SCA has been deepening the canal in an effort to accommodate larger ships, as well as developing its port infrastructure.
The beneficial market conditions have prompted the SCA to raise its fees for transit through the canal by an average of 7.1 per cent for 2008. It is a sharp increase, compared with 3 per cent in each of the previous two years.
“There is no competition,” says Jorn Hinge, chief operating officer of Kuwait-based United Arab Shipping Company. “They have calculated the costs against going via the [southern tip] of Africa and know they can charge this. Shipping companies are very limited in what they can do. Everyone’s costs will go up, but at least they will go up by the same amount.”
The fees come into force from April, with the authority keen to capitalise on the shipping boom. The tariff on liquified natural gas (LNG) carriers has been raised by 10.5 per cent, despite the SCA’s wish to capture more LNG traffic. Despite the increase, discounts on LNG tankers carrying more than a certain quantity remain in place.
“Of course, the conditions are so good there are huge gains to be made and we have to take some of that cash,” says the SCA official. “We expect the boom will extend for a long time. The world economy is growing fast, especially China and India.”
However, the move has been linked to the widespread predictions of a global economic slowdown this year. Simon Kitchen, research analyst at Cairo-based investment bank EFG-Hermes, says the Egyptian government could be keen to maximise revenue from the canal now, anticipating that tariffs may have to be reduced in 2009 and 2010.
“It is a noticeably more aggressive increase compared with previous years,” he says. “It may be that they hope to quickly raise revenues now and anticipate maybe having to reduce their fees later.”
Kitchen adds that revenues from the canal are compensating for other areas of the Egyptian economy that have been hit by the high cost of oil. The subsidies on oil products by the Egyptian government been have rising in recent years.