Suez Canal - Ships Passing in the Night.

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Suez Canal - Ships Passing in the Night.

Post by Hafiz »

Canal Disaster.

Some idiot has let something slip. The President said the redevelopment of the canal cost $US9 billion but the geriatric admiral that runs it now says it cost $US20.48 billion – could the army that did the ‘job’ have gone more than 100% over budget. According to Reuters the initial budget announced by the government was $US4 billion.

The admiral says all the usage stats on the canal are fabulous - he is a liar. The world knows two things. Revenue is flat or increasing slightly (profit absolutely unclear) and after the $US9 billion in new capital has produced nearly nothing in 3 years you write it off with a $US9 billion loss. Imagine if you ran a restaurant and put an extra million into the kitchen and dining floor following which nothing happened for three years. Your bank would foreclose or you might suicide. Your accountant would tell you that the extra capital must be written off. In all events everyone would tell you that you are a complete fool and should get out of the industry - or go into bankruptcy.

In the case of both the canal and the restaurant you don't put huge new capital into something until and unless you are clear of strong new demand for your expanded service.In the case of the canal they claim they have reduced transit times significantly but that doesn't seem to be attractive to shipping companies. So they have provided a new service which isn't very relevant to demand. A bit like the looney arguments in Egyptian Tourism - build a new hotel, water park, new gated resort, new airport etc and the tourists will come. In this case if you want to succeed you need to link your offerings to what people want/need.

Demand is flat for a number of reasons including flat international trade. The Yemen war is also affecting ships – the Saudi’s closed entry to the canal last week for 3-4 days for reasons that are unclear.

Basically the Canal has such high fees that its attractive for some, if oil is cheap, to go around the Cape. In addition its screamingly clear that the effect of the Chinese belt and road system they are building will deliver product into Europe from China by rail quickly and cheaply and therefore take major business away from the canal.

Oddly, after the President’s expansion the canal can’t take the biggest ships – I’m unsure whether that is because of draught of beam. Who would be surprised that Egypt had thrown a lot on money at something before thinking it through. Its complex but Egypt since at least 2015 has been trying to keep ships smaller whilst it builds its own gigantic Imperial Presidency. ... -2017-0001

The other ‘aspect’ of the canal are the free trade zones. At this stage the only takers are China and Russia and what they would use them for other than transshipment is not clear to me. From their point of view they get free land and infrastructure, funded by the Egyptian taxpayer, years or decades free of Egyptian taxes, possible access to cheap military conscript labor, complete exemption from Egyptian law (I think) including employment/labor law, free housing for workers, paid for by the taxpayer etc. Its unclear how far Russia and China have gone and how far they will go. Others looked at it, Italy I think, and walked away. That the US, France, India and the UK won't even look at it is not insignificant. I find the whole free trade zone difficult to understand except that the benefits to Egypt seem slight - possibly nothing.

Under a very complex trade treaty which I find hard to understand it might mean that Russian and Chinese product using these zones can get into the EU and USA on the same tariff terms as Egyptian product, near nothing, but I need to check this out further.

There is also talk of using the canal zone for processing natural gas – for example into agricultural fertilizers.

Even if it all goes ahead the jobs spinoffs will be small with the senior jobs going to Europeans/Chinese etc and the slave jobs to Egyptians prepared to live in the middle of nowhere in awful conditions with very few social services.

That the Canal and related developments should be run by a geriatric admiral with no commercial experience, Mamish, should surprise no one. Where else in the world do you have a major piece of world trade infrastructure run by a nobody. ... Canal.aspx

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