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Monday, April 11, 2011

Boxship agrounds near Suez - the feared economic impact Worldwide !!

It has shrunk the distance in a big measure – the geographical position of the Suez Canal makes it the shortest route between East and West as compared with the Cape of Good Hope. The Canal route achieves saving in distance between the ports north and south of the Canal.  It is not only the distance that shrinks but also saving in tike, fuel consumption, ship operating cost and eventually cost of the commodity that is being transported.

There were reports that traffic  through Egypt's Suez Canal was disrupted after a 42,000-tonne container ship ran aground  early this month, due to engine failure.  The ship reportedly ran aground at al-Kantara city near the Mediterranean port city of Port Said, blocking the movement of 28 other ships in the waterway.  Though full details could not ascertained, there are reports that the ship was Liberian flagged.

The US response on what could happen, if the crisis in Egypt endangers international shipping was terse.  The White house press Secretary said that they would not get into a series of hypotheticals.   Thousands of ships cross the Suez canal – in the month of Jan 11 alone, it was close to 1500, of which the maximum were  container ships, followed by tankers, then by LNG, bulk carriers, general carriers, car carriers and passenger ships.  Any conflict in Middle East has the potential to disturb the passage in Suez and throw out of gear the movement of vessels, which will hit the other Nations badly including US – it is economic hostage.

The Suez Canal [with nickname ‘the highway to India’] is an artificial sea-level waterway in Egypt connecting the Mediterranean sea and Red sea.  It was opened in 1869 and allows transportation between Europe and Asia without circumnavigating around Africa.  The northern terminus is Port Said and the southern terminus is Port Tawfik.  If the Suez Canal were to close, oil tankers would be forced to sail around southern Africa -- adding some 6,000 miles to the journey, which reportedly could be 12 extra travelling days for a vessel from Saudi to Houston.   Though there are very big ships which still could not sail through – most modern ships extensively use this – the toll revenue from the canal is an important source of income for the Egyptian govt.  The navigable channel is bordered by light and reflecting buoys as navigational aids to night traffic. Most of the canal is limited to a single lane of traffic, but the canal has 4 doubled zone with 6 bypasses which allows the transit of ships in both directions.  They are Port Said, Ballah, Timsah, Deversoir, The Bitter Lakes & Kabaret by-passes.

The map below compares the distance between Colombo & Newyork -  through Panama canal and Suez canal  - and if vessel were to circumnavigate the entire Africa !!

There was a sigh of relief as the traffic could be resumed immediately as the container ship that had run aground could be moved out.  A vessel running aground is not a great news but the fragile economies of oil makes it much followed news.  For sometime the crisis in Egypt loomed over the oil market.  As one would recall, the most populous country in the Arab World erupted in mass protests in Jan 2011 and after 18 days of angry protests and after losing the support of military and US, Mr Hosni Mubarak resigned on Feb 11, ending three decades of rule.  The military stepped forward and took power.  Now there are reports that few hundreds of protestors defied army’s demand to quit Cairo's Tahrir Square vowing to stay until Egypt's ruling military council heeds their demand for civilian rule and a deeper purge of corrupt officials.

It is widely believed that the political crisis of Egypt is unlikely to hit the oil producers but the crude output would be impacted is there is blockade of Suez canal.  Some sources state that Egypt is a marginal producer and the bigger players are the GCC countries [Saudi, UAE, Kuwait]. With the globalisation,  a crisis in one country could impact far off region as well.

So far neither the political crisis of Egypt nor the agrounding of the container vessel has had a  discernible impact.

Regards – S. Sampathkumar

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