Suez Canal: Vital Global Trade Route And Energy Transport Hub

September 19, 2023


Accounting for 12% of all global trade and 30% of international container traffic in 2020, the Suez Canal is vital to countries in Asia and Europe, according to Freightify, a platform for freight forwarders. “The Suez Canal is also a key regional shipping hub for oil and hydrocarbons from Asia and the Middle East to Europe,” the company said in a 2022 blog. It is “responsible for transporting about 8% of the world’s oil and 8% of liquified natural gas.”

Not content with those impressive figures, the government wants to increase revenue from the 193-kilometer waterway by raising the number of ships passing through. A book titled The Suez Canal: Past Lessons and Future Challenges, published in January as part of a book series by Palgrave Studies in Maritime Politics and Security, said those efforts should “positively contribute to Egypt’s national income of hard currencies, create job opportunities for young people living in the Canal Zone [Suez, Port Said and Ismailia governorates], Sinai and neighboring governorates, and create new urban societies.”

To achieve that, the state has invested heavily in widening and deepening the canal since 2015, developing ports and roads, upgrading navigation systems, and offering incentives for freighters.

Bigger waterway

August 2014 was a landmark month for Egypt, as the government started digging the “New Suez Canal” to halve transit time to 11 hours, according to a January 2023 article on the State Information Service website (SIS). The project, inaugurated in August 2015, included digging a new waterway along the 60 to 90-kilometer marks.

In a project brief on its website, the Suez Canal Authority (SCA) said the new canal would not only nearly double the number of vessels by lowering wait times but also “raise [its] safety rating” as the new waterway means an alternate route if the main one is blocked.

The SIS article said the decision to make the Suez Canal bigger was “an affirmation to the world’s shipping lines, which is competing to build larger ships, of its ability to receive vessels of large draughts.”

In March 2021, however, the government learned the hard way that the 2014 expansion project wasn’t enough. That was the month the 400-meter-long Ever Given, a mega-ship carrying 18,300 containers of fresh produce, lost control and got stuck for six days near the Bitter Lakes, blocking the canal from both directions. A March 2021 report by the BBC said the incident “held up an estimated $9.6 billion of goods each day.”

After the event, Reuters reported the SCA would “accelerate plans to extend a second channel of the canal and to enlarge an existing channel.” SCA Chairman Osama Rabie told the media at the time, “The project will be completed in 24 months. We started in July 2021 and [should] finish in July 2023 … It will improve ship navigation by 28% in this difficult part of the canal.” The government and SCA had not discussed the project’s status at press time.

Nevertheless, the SCA expects an average of 97 vessels to pass the Suez Canal daily by the end of 2023, compared with 49 in 2022. The government said those additional freighters should increase the canal’s revenues from $5.3 billion in 2022 to $13.226 billion in 2023.

Ports, Infrastructure

Another avenue the government is taking to make the Suez Canal more attractive is upgrading ports along its route. In March, the government signed an agreement with Abu Dhabi Ports, a UAE state-owned company, to “improve logistics and port management at its commercial maritime gateways in the Suez Canal area,” reported Marina Blinda of Atalayar, a news portal focusing on Mediterranean countries.

In March, Abu Dhabi Ports said it has a $200 million concession agreement to invest in Safaga 2 Port, nearly 430 kilometers south of the southern entrance to the canal. According to the media, the upgrade should enable the port to handle as much as 5 million tonnes of general and dry cargo and 1 million tonnes of liquid cargo. It should be operational during the second quarter of 2025.

Also in March, Abu Dhabi Ports signed a 15-year agreement with the General Authority for the Suez Canal Economic Zone to “establish two bulk cement handling terminals in the ports of Arish and West Port Said.” Abu Dhabi Ports will operate them starting next year.

Throughout 2022 and 2023, the government made several announcements about improving the infrastructure and increasing dock areas and container-handling capacity in Port Said, Adabiya, Arish, Sokhna, and Al-Tor ports, which all serve ships moving along the Suez Canal. Blinda said that would include “improved road and rail networks.” In January, the SIS said the purpose of those expansions is to allow the docking of the biggest category of cargo ships, called Triple E vessels.

The government also is investing heavily in roads and transportation networks around the Suez Canal area to make it a more vibrant trade destination. According to SIS, there are “four mega tunnels and five floating bridges connecting the two banks of the Canal.” From April 2017 to January 2023, the government has invested $25 billion in 192 projects serving the canal, with $55 billion to be spent in the coming 15 years.

Increasing opportunities

One of the most significant opportunities that could attract more freighters to use the Suez Canal is that it is becoming more eco-friendly, in line with the International Maritime Organization standards. In November, the SCA said it “initiated multiple initiatives toward the transition to a green canal.”

That entails having hybrid-power systems that use solar and wind power “to produce energy for the navigation control station throughout the Canal.” The SCA also would replace its fleet of maritime vessels and land vehicles to use natural gas instead of petrol or diesel.

The SCA also noted it is “studying providing incentives for vessels that use green energy.” According to an Arab News article, that discount could be as much as 20% for ships that use green hydrogen.

According to the Palgrave Studies in Maritime Politics and Security book, geopolitics will play a significant role in helping the Suez Canal become even more attractive for international trade. It said, “Regional instability in the Middle East … prevents the development of alternative terrestrial routes.”.

Another advantage is the canal lies along the route of China’s Belt and Road Initiative, which [aims to] increase … trade between Europe and China.” Palgrave said that factor is amplified by China’s investments in the Suez Canal region.”

However, the government needs to act quickly, given that other countries are actively seeking alternate routes. The main alternative to the Suez Canal would likely be the newly created passage across the North Po
le, made possible by the breaking up of the ice pack due to global warming. Palgrave said, “The expected completion of the Northeastern Passage in the Arctic requires Egypt … to demonstrate greater efficiency and profitability to retain shipping.”