Dire straits for Suez shipping

(Originally published by Blouin News.)

The near-foundering of one of the world’s largest container ships at the mouth of Egypt’s Suez Canal raises the specter of a slowdown in the vital shipping lane — one of the country’s few remaining sources of significant income. On Feb. 2, a thruster in the Emma Maersk broke as the container ship began its journey south through the canal. This flooded an engine room, forcing the captain to halt. The Emma remains hobbled but safely docked near Port Said. [Note 2/21/13: The Emma was towed to a repair facility on February 18.]

There is already an air of suspicion around the incident. The Maersk Line has ruled out human error while admitting that it cannot explain the break to the thruster — a side propeller mounted in an internal tunnel to boost maneuverability.

Yet even if the Emma’s malfunction is determined to be an accident, the ship’s stranding highlighted the canal’s precarious position as Egypt seeks to squeeze more money out of an anxious global shipping industry. It occurred four days after the army was called out to enforce emergency law along the canal following bloody street battles in Port Said. Several days of protest and gunfire around a prison, police station and other government buildings brought Port Said’s business to a halt and raised anxiety among shippers, insurers and regional neighbors.

Egypt’s military considers the canal a “red line,” one of the most vital institutions of the state. The armed forces arguably administer the canal themselves, whether by physically securing the waterway or through networks of current or retired military officials who run the ports and government bodies responsible for the canal. In the days after the Port Said battles, which left more than 50 people dead, Admiral Mohab Mameesh, the chairman of the Suez Canal Authority, conducted two brief, impromptu trips on passing vessels to reassure skittish shippers that the waterway was “100% safe”, despite President Mohamed Morsi’s January 28 declaration of a state of emergency along its entire length.

Egypt earns $5 billion — 2% of national income — from the canal every year. With investment and production almost down across nearly every sector since the revolution, the state wants more. The government raised tolls for ships passing through the canal by between 2% and 5%  in 2012 and will do so again this May. The importance of canal income is heightened because it is in foreign currency. Egypt’s foreign exchange reserves have plummeted by 62% since the revolution. They recently hit $13.6 billion, below the level needed to guarantee the three months of imports crucial to manufacturing and food supply.

Those hikes have irked lobbying groups like the International Chamber of Shipping, which complained that the market for cargo is bad enough as it is. Secretary General Peter Hinchliffe has said that the toll rise might spur shippers who are already considering travel around the Cape of Good Hope, made less expensive by steaming more slowly, to ditch the canal. “Hinchcliffe added that the ICS was particularly disappointed by the ‘lack of consultation’ that preceded these increases,” TradeWinds reported.

Meanwhile, Israel, which has been considering a rail alternative to the canal, is reportedly finalizing plans for the new route. “There are a number of scenarios that we need to prepare for, including the peace treaty between Israel and Egypt being challenged, or groups attempting to seize control of Suez in one of the ongoing protests there,” one senior Israeli official involved told the Times.

The Emma Maersk incident cannot have done anything to improve sentiment among global shippers, coming as it did during a semi-insurrection at the mouth of the canal that revealed how little Morsi’s administration exerted control outside of Cairo. The Emma will face months out of service, and its cargo — weeks behind schedule — is just now being transferred to another Maersk ship, setbacks well noted by insurers and shippers. It need not have been sabotage to damage the Egyptian economy.