Major shipping trade lanes are reacting to the growing demand for sea freight services. The World Shipping Council reported that many of the top 10 exporters of containerised cargo have increased the amount they ship since 2010, reinforcing the need for infrastructure to also evolve.
In 2015, the Suez Canal received a major upgrade and the effects are still being felt around the shipping industry. Even before the upgrade, as many as 50 ships per day could pass through the channel, netting the Egyptian government up to $5 billion in tolls each year. What as the expansion changed?
New Suez Canal aims for higher economic benefits
In its old state, the Suez Canal wasn't deep enough to allow two modern container ships to pass along side each other, consequently limiting the amount of traffic that could pass through. In 2014, Suez Canal Authority (SCA) began work deepening the canal to ensure it met current shipping standards and was no longer limiting the types of ships that could pass through. The work was completed within one year.
— Hoda A Kamel (@HodaAKamel) August 6, 2016
As well as deepening and widening the existing channel, a further 35 kilometres was added in the form of new channels. The Conversation reports that this expansion nearly doubles the number of ships that can pass through daily – from 50 to 97 – and reduces waiting times for vessels from 18 hours down to 11.
With many more ships passing through the upgraded Suez Canal by the day, the SCA is expecting annual revenue from tolls to over US$13 billion by 2023.
What challenges will the expansion bring?
While the SCA is expecting a greater payout from tolls due to higher number of ships passing through, an article from Trade Arabia suggests these benefits are yet to manifest. In fact, the first year after the expansion was completed, annual toll revenue dropped by 5.3 per cent in comparison to the previous year.
Some shipping providers are avoiding the Suez Canal due to tolls.
The same article also indicated that many carriers are choosing to avoid the Suez Canal, despite its convenience, due to the tolls required for passage. Even though it adds up to 2,000 nautical miles to a journey, sailing via the Cape of Good Hope is proving to be an attractive option for some sea freight services
The Conversation predicts further challenges for both the Suez Canal and its counterpart in Panama. Despite their respective expansions, neither is suitable for the world's largest container ships. The largest ships can carry up to 20,000 containers worth of freight, whereas the new Panama Canal can only support ships with a capacity of up to 14,000 containers.
How the industry is reacting
The New Suez Canal expansion reinforces how important the channel is to global sea freight routes, even though continued evolution of container ships will likely necessitate further work in the coming years. Chairman of Seatrade, Chris Hayman, notes that the Suez Canal remains an integral part of the global shipping industry.
— Seatrade ME (@SeatradeME) October 29, 2016
"The Suez Canal is integral to maritime development in the Middle East and naturally at a time when the shipping industry is facing a challenging economic climate, the issues surrounding trade, shipping markets, infrastructure and investment are bound to stimulate lively debate," he explained.
On top of its value to the Middle Eastern maritime industry, the fact that both the Panama and Suez Canals received expansions within a few years of each other indicates there is still somewhat of a rivalry between the two shipping options.
"The SCA also faces renewed competition from the widened Panama Canal, which is looking to regain some of the Asia-US East Coast container trade it has previously lost to the Suez Canal," Hayman continued.
Demand for sea freight is only going to rise in the coming years, and expansions across existing lanes will ensure that infrastructure will evolve to meet these demands.