Suez Canal implements plan to increase revenues, face international trade growth slowdown

Chairman of Suez Canal Authority expects negative impacts of Chinese and Eurozone's economic slowdown to ebb away before Q4 of 2016

Chairman of Suez Canal Authority (SCA) Mohab Mamish expected the negative impacts of the slowdown of China and Eurozone's economies on international trade to ebb away before the final quarter (Q4) of 2016. Consequently, impacts of this slowdown on shipping traffic in Suez Canal would retreat.
Mamish said the studies conducted by the Planning and Research Department at SCA showed that rates of trade between China, Europe, and North America are expected to register better figures starting in the second half of 2016.
The SCA believes the slowdown of China's economy is one of the factors that led to decreasing its revenues to $5.175bn in 2015 from $5.465bn in 2014. Chinese economy retreated to approximately 6.5% in 2014, compared to rates exceeding 10% in previous years.
Mamish said the SCA is relying on a three-point strategy to increase revenues after it was able to raise its rating among other international sea lanes by digging the New Suez Canal, with the aim of cutting down ships' waiting time from 18 to 11 hours.
The first point in the plan depends on empowering the fleet of tugboats and boats used in guiding ships in the canal by adding new units to the fleet. This targets an improvement in the quality of services presented to the transiting ships.
Over the past two years, a number of new tugboats were already added to the fleet. Moreover there is an ongoing plan to add more than 15 new boats to the fleet gradually.
Canal for Marine Construction, affiliated to the SCA, signed a memorandum of understanding (MOU) in January with a Swedish company specialised in manufacturing multifunction boats and managing factories of multifunction boats. The company grants the right to use intellectual property rights in manufacturing multifunction boats, Mamish said.
The second point in the plan is to increase revenues from providing logistical services, instead of relying on transit fees alone, which is affected by movement of international trade.
In order to achieve this goal, they are working on establishing fuelling station to serve the transiting ships, in addition to studying opportunities for signing agreements to provide services for ships, like the agreement signed with the Saudi company Bahri to study establishing a joint company working in the field of providing maritime services to ships transiting Suez Canal.
The second point also includes developing seven companies affiliated to the SCA, especially as these companies contribute to manufacturing tugboats and boats that serve the shipping movement in the canal. Companies affiliated to the SCA include Canal Harbour & Great Projects, Canal Mooring & Lights, Canal Naval Construction, Canal Rope, Suez Shipyard, the Port Said Engineering Works, and Canal Co. for Nile Shipyard.
The third point on the plan is attracting new shipping lines, whether through bilateral agreements with specific companies, such as that with Bahri transport all of Saudi Arabia's needs through the Suez Canal, or through presenting attractive transit offers to ships from other Arab countries, such as Kuwait.
Mamish said Gulf countries were affected by the decline of oil prices. Consequently they are carefully calculating the transport costs of the available shipping passes. Thereby, good offers must be presented to attract them to the canal.
The SCA uses Special Drawing Rights (SDRs) in calculating the price of transit, given that this mechanism, issued by the International Monetary Fund (IMF), protects the Suez Canal from severe fluctuations in currencies' exchange rates.
"For instance, if we depend on dollar in pricing and it suffers from severe decline compared to other currencies, revenues of the canal would be subject to exchange rate of single currency. This does not go in the same line with the hedging policy the economic institutions and companies in the world follow," Mamish said.
The value of SDRs declined by 7.9% against the dollar in 2015, which decreased the canal's revenues, which are calculated in dollars.
Since the canal was reopened in 1975, the SCA has depended on SDRs, which includes four major currencies: the dollar, euro, yen, and sterling pound. The Chinese Yuan will be added before the end of 2016.
In another context, Mamish said the SCA is still choosing between Greek and Italian offers to present technological assistance for implementing project of fish farms in Suez Canal, which includes establishing factory for fish feeds.