| Issue 379
and Regional Affairs
Chronicle Foreign Service
Wednesday, April 29, 2009
With more ships opting to go around the Cape of Good Hope to avoid
Somali pirates rather than pass through the Suez Canal and enter the
world's most dangerous waterway, Egyptian officials are concerned about
a steep drop in revenue and its effect on the nation's economy.
The Suez Canal has long served as a reliable source of foreign currency,
and falling revenue will affect not only Egypt's balance of payments but
also a rising budget deficit. After tourism and remittances from
Egyptians living abroad, the canal is Egypt's main source of foreign
currency. In the last fiscal year, the canal earned more than $5.1
billion. But revenue is expected to decline to $4.5 billion in the
current fiscal year and $3.6 billion in the next, according to EFG-Hermes,
a Cairo regional investment bank.
Taking the long way
The threat of Somali pirates has prompted some of the approximately
20,000 vessels that use the Suez Canal annually to go around the Cape of
Good Hope rather than enter the Gulf of Aden, says Neil Davidson,
director of ports at London-based Drewry Shipping Consultants.
Denmark's Maersk Line, one of the world's largest shipping lines, is
rerouting some of its ships for security concerns, says Finn Brodersen,
the company's senior director of technical organization.
"If they cannot be protected by military resources in the area, then
these vessels have to go south of Africa," Brodersen said.
Somali pirate attacks increased tenfold in the first three months of
2009 in contrast to the same period in 2008, according to the
Malaysia-based International Maritime Bureau, a piracy watchdog group.
Pirates typically attack unarmed vessels in small skiffs with automatic
weapons and rocket-propelled grenades. If unable to escape, the ship is
taken over by the pirates, sailed to the Somali coast and held for
ransom. Last year, pirates received some $80 million for the release of
ships, according to several press reports.
As of April 20, Somali pirates were holding 15 ships with some 250 crew
members, according to the bureau. The bureau says pirates have already
seized 23 ships in 91 attacks - 59 in the Gulf of Aden and 32 off the
east coast of Africa in 2009.
Somali piracy is hardly a new phenomenon. After the collapse of the
nation's central government in 1991, foreign ships arrived in Somali
waters, illegally dumping hazardous materials and fishing for tuna,
shrimp and lobster. This spurred some destitute Somali fishermen to form
the Volunteer Coast Guard of Somalia to dissuade dumpers and fishermen
and sometimes elicit taxes from both. By the beginning of the decade,
many fishermen had turned to the more lucrative business of piracy.
The danger to merchant ships has led the United States, China and Japan,
among other countries, to send naval vessels to help protect ships
against piracy. NATO established the Combined Task Force 151, while the
European Union created a naval mission to protect World Food Program
shipments to Somalia, safeguard vulnerable ships, and disrupt and deter
"The EU's main effort is in the Gulf of Aden through which about 20
percent of all global sea traffic travels and where ships are at their
most vulnerable," said British Royal Naval Reserve Cmdr. Alistair
Worsley, an EU spokesman.
Just last week, Gen. David Petraeus, the top U.S. military officer in
charge of the African coastline, told Congress that shipping companies
should stop regarding piracy as just a business problem and consider
hiring armed guards to protect their ships.
To be sure, piracy is just one factor affecting Suez Canal revenue.
Falling global trade is a major influence. And high transit tolls are
"one of the serious costs of doing the passage, whichever way you go,"
said Peter Hinchliffe, marine director of the International Chamber of
Shipping. The average toll to cross the canal is about $250,000 per
In a recent news release, the Grand Alliance, a container consortium of
four large shipping lines, announced in February that it is rerouting
some of its vessels sailing east between Europe and Asia around the Cape
of Good Hope, citing "high Suez Canal toll fees, which are difficult for
carriers to afford in the current economic environment."
And falling fuel prices have increased the allure of sailing around the
Cape. "If fuel costs jump up again, then clearly Suez becomes more
competitive once again," Davidson predicted.
But shipping companies also face hefty piracy insurance fees for sailing
through the Gulf of Aden - an average $20,000 per ship, according to
Robert Davies, kidnap and ransom underwriter at Hiscox, a Bermuda
company specializing in risk insurance.
Perhaps with these factors in mind, Suez Canal Authority Chairman Ahmed
Ali Fadel has said Egypt will not increase canal tolls in 2009. Instead,
the authority will continue to offer rebates to ships on long hauls on a
case-by-case basis. Canal officials declined to be interviewed for this
Meanwhile, an official of the Asian Shipowners Forum, whose members make
up about half of the world's merchant fleet, recently said that Somali
pirates will launch more sophisticated and better-armed attacks this
year on vessels in the Gulf of Aden. Such predictions have Egyptian
officials nervous that canal revenue could fall even further. "It's
something they are concerned about," said Simon Kitchen, an economist at
Suez Canal history
The Suez Canal is the major transit point for ships sailing between
Europe and Asia without having to navigate around Africa. The
119-mile-long canal runs from the town of Suez in the south to Port Said
in the north. It is owned by the state Suez Canal Authority.
It took 11 years and 30,000 workers to build the canal, which opened in
1869. French engineers under the auspices of French diplomat Ferdinand
de Lesseps oversaw its construction.
In 1956, Egyptian President Gamal Abdel Nasser nationalized the
waterway, closing the Straits of Tiran to stop Israeli shipping in the
Gulf of Aqaba. His action provoked the Suez Crisis, in which the United
Kingdom, France and Israel briefly took control over the canal.
Today, passage through Suez takes between 11 and 16 hours, and the
average toll is $250,000 per ship.
E-mail Louis Wasser at firstname.lastname@example.org.