Suez Canal Races to the Finish

Just one year after its announcement, Egypt’s expanded Suez Canal is open for business. Egyptian President Abdel Fattah El-Sisi led the inauguration ceremony, which was attended by several Middle Eastern and European world leaders. The publicly-funded expansion cost about $8.5 billion.

Expedited vessel transits and economic growth are Egypt’s primary objectives in the Suez Canal Expansion project. Already the fastest route between Asia and Europe, the new developments will cut transit time from 18 to 11 hours. The canal’s improvements include the construction of a 23-mile parallel channel which will allow two-way traffic and reduce waiting time.

More than 17,000 ships entered the Suez Canal in 2014, which is about 50 ships per day. Egypt expects the widening to increase traffic to about 97 ships per day and nearly 34,000 annually. The economic impact is expected to be immediate and substantial.

This is vital to a nation that has suffered a slump in foreign investment and tourism recently. Prior to expansion, 120-mile canal earned Egypt about $5.3 billion annually and handled about eight percent of the world’s sea trade. The Suez Canal Authority expects the upgraded canal to boost annual revenue to about $13.5 billion in 2023 and anticipates growth by at least another four percent. 

The new channel is part of an effort to establish Egypt as a premier trade hub by building larger ports and shipping facilities throughout the canal. Egypt hopes to become an international and logistics hub, which will attract more foreign investment. The Suez Canal represents about 35 percent of the nation’s GDP. 

In February, Egypt announced that it had cut corporate taxes in the area to one-third of the national rate to boost investment appeal.

The original expansion project was expected to take three years, but President El-Sissi demanded that the project be expedited.

Unrealistic Expectations?

While Egyptian officials forecast lofty economic gains, some shipping experts wonder if the financial impact is being overstated. Drewry, a shipping analyst in the UK, states international trade is determined by several factors, which includes demand, exchange rates and labor cost. It contends that lower shipping costs are just one part of the equation.  

Drewry also added that the Suez Canal was not hitting capacity prior to the expansion, which raises questions regarding Egypt’s expectation of trafficking 97 vessels per day. The introduction of ultra-large box ships may impede the Authority’s expectation of doubling growth. 

Arms Race

Maintaining its financial advantage over the Panama Canal, which handles only two percent of global trade, is a huge driving factor the expansion. The Suez Canal’s swift completion may be another factor in favor of Egypt.  The expansion of the Panama Canal, which is due to open in 2016, was plagued by cost overruns and numerous delays. The Suez Canal handled about 963 million tons versus Panama’s 327 million tons.