Suez Canal to Increase Transit Fees by 6 Percent
November 12, 2021
The Suez Canal Authority recently announced fee increases for commercial vessels passing through the waterway. Experts warn that this move will cause price increases and further inflationary pleasures on the global supply chain. As the shortest route between Europe and Asia, linking Red Sea with Mediterranean Sea, about 12 percent of all commercial cargo ships pass through the Suez Canal. Officially opened in 1869, today the waterway is a major source of revenue for the Egyptian authorities.
New Fees and Exemptions
The 6-percent increase in fees will begin in 2022, applicable to all cargo vessels transiting through the canal. The new tolls will not apply to cruise ships and liquified natural gas vessels, the latter being a very competitive market. Yet, even for liquified natural gas carriers, the authority cut discounts from 15 percent to 25 percent. The travel and tourism sector will be excluded as cruise lines have suffered significant losses due to the ongoing pandemic. Sea yachts and cruise ships are projected to complete recovery by next year.
Due to the prolonged pandemic, the Suez Canal Authority implemented reduced fees to stimulate traffic, cutting dues for tankers in the fourth quarter of 2020 and fees for some container vessels in July 2021. Transit tolls for all commercial vessels were frozen at 2020 levels due to global economic conditions.
Rationale for Fee Increases
According to SCA Chairman Osama Rabea, the goal is to implement a flexible and balanced pricing and marketing strategy to the benefit of the authority and its customers. The fee increase has been implemented following extensive studies and based on economic forecasts by the International Monetary Fund. According to IMF’s forecast, the global economy will grow by 4.9 percent and trade traffic will increase by 6.7 percent in 2022. Demand for maritime transport and growth in traffic will result in continued high profits for operators, Rabie added.
Additionally, the Suez Canal Authority begins a $70-billion long-term development program with the goal of gradually reaching zero carbon emissions by 2050. The goal is to supply clean energy for canal and port operations such as tugs and vessels aiding ships that are transiting through the Suez Canal.
At present, high bollard pulls are used to manoeuvre and move large commercial cargo ships. The program supports the deployment of wind and solar energy technology to produce green hydrogen for port vehicles and tugs. This will help reach zero carbon emissions by 2050, but the decarbonization program will result in price increases. International freight forwarders will pay more for passing through the Suez Canal but operations will be greener and more climate-friendly.
The Suez Canal Authority also announced plans to use a differentiated tariff scheme under which less-polluting commercial vessels will enjoy lower fees and a green premium. As transit fees will be paid by carriers, they are likely to be passed to cargo owners and end consumers.