Global Logistics: The Suez Connection
Many U.S. shippers and carriers are rethinking their Asian routing patterns and focusing more and more on the prospects offered by the Suez Canal.
By John Paul Quinn -- Logistics Management, 5/1/2007
Transporting goods to the United States from the Far East via the Suez Canal was historically considered the long way around--too time-consuming, and running a distant third to transpacific sea lanes to the West Coast or through the Panama Canal to Atlantic ports.
But a combination of global economic developments has caused U.S. importers and exporters and their carriers to reevaluate their preconceived notions about Asian trade logistics, putting the Suez back in the spotlight.
First of all, the explosive growth of China to become the virtual manufacturing epicenter of the world brought along internal economic repercussions of equal proportion.
The expanding Chinese economy has been hit with significant inflationary pressure pertaining to standard of living, rising salaries, and raw materials pricing, which has caused Western manufacturers and importers to look for less expensive Asian sources for low-margin products such as toys, apparel, footwear, and furniture.
What has developed is a noticeable shift of this production down into Southeast Asia and across to the Indian subcontinent. Vietnam, Cambodia, Sri Lanka, Pakistan, and especially India are now seen as emerging production powers.
Industry observers believe that Singapore is developing as the key hub port--the vessel service routing watershed point where it becomes economically feasible to start marshaling cargo to sail west and on through the Suez rather than across the Pacific.
Three key reasons...
Three other factors have contributed to growing interest in this route, and they relate to developments in the Western Hemisphere.
First, the Panama Canal, which is currently grappling with capacity issues, has embarked on a $5.25 billion mammoth makeover expansion program. The canal will not see completion of this work until about 2014. The major objective is to allow the canal to accommodate the more cost-effective post-Panamax caliber vessels of over 5,000 TEUs--which the Suez has always been capable of handling.
Sources say financing this project will almost certainly involve significant toll hikes. Even now, when ships are stacked up waiting to enter the canal, auctions are held to sell places further up the line which can cost a vessel as much as $200,000.
Second, there is the ongoing West Coast intermodal uncertainty issue involving sporadic port and land traffic congestion, as well as impending railway and labor contract negotiations, all of which have caused shippers and carriers to explore routing alternatives.
According to Rick Powers, director of marketing at the Maryland Port Administration, shippers have a vivid recollection of Pacific port strikes and rail problems a few years ago. Powers says shippers are hedging their bets and spreading business around, with many of them inclining toward all-water routes to the East Coast either through Panama or the Suez, with the latter having the greater growth potential.
"Right now, almost every ocean carrier either has a service in place through the Suez or plans to implement one to accommodate the anticipated production shift southward in Asia," says Glenn Carlson, vice president of business and economic development at the North Carolina State Port Authority.
Third, there is the proliferation of distribution centers representing a virtual who's who of high-volume, "big-box" retailers that continue to spring up adjacent to ports all along the eastern seaboard.
"Shippers want their cargo landed closer to the point of destination," notes Mark Page, director of research at Drewry Shipping Consultants, Ltd., in the U.K. "This makes East Coast ports attractive to shippers and carriers looking to reduce costs and risks and who want to have an alternative for moving cargo."
But it's always good advice not to jump into any water route without due consideration, advises Byron Miller, public relations director at the South Carolina State Ports Authority.
"When exploring the Suez option, shippers should view it as a viable possibility--but they should talk seriously to their carriers about it," he says. "If traditional routing raises questions of cost concerns and shipping delivery capacities, the Suez should be a real alternative."
In the final analysis, shippers have to carefully consider how time-sensitive their product is in terms of transit from a given Asian point of origin to their U.S. port of entry and their DCs before determining which route to market is best.
East Coast to gain
The East Coast ports stand to gain the most from any redirection of Asian traffic through the Suez Canal.
"If we're talking about post-Panamax ships, then New York/New Jersey, Norfolk, Charleston, and Savannah can handle them," observes Paul Bingham, economist at Global Insight Inc., Washington, D.C. "Suez has basically no limits on handling container ships since there are no locks, and the canal is ready now for an increase in container traffic." Bingham adds that there is the potential for using the smaller Panamax vessels on the Suez route since they can call on more Mediterranean ports with shallower draughts before crossing the Atlantic and then putting in to almost any East Coast port.
John Martin, president of the consulting firm Martin Associates in Lancaster, Pa., cautions shippers to make some astute and informed judgments when they're choosing routes from and to Asia.
"There has been a lot of investment in infrastructure and logistics support systems in Indian ports, and the Suez route offers transloading and shipment opportunities through the Middle East and Mediterranean for East Coast ports," says Martin. "Until the Panama situation is resolved through expansion, many larger ships will be redeployed via the Suez." However, Martin cautions that transit times will remain an issue. "If higher value, time-sensitive Asian cargo is involved, it will probably come through the West Coast ports, especially San Pedro Bay, and there will be no decline in transpacific service," says Martin.
Roberto Rodriguez, general manager for marketing and business development at the Port of Savannah, believes that East Coast ports will experience a higher growth rate over the next few years than other U.S. harbors.
"Volume from Southeast Asia through the Suez Canal to the Atlantic coast has reached levels to financially justify a weekly service of eight or nine vessels on a string," says Rodriguez. "Trade along the route from Southeast Asia through Suez and on to America is probably the fastest growing shipping lane in the world. To this point, vessels can be loaded and unloaded along the way from Singapore to Spain, and carriers can put together combinations of ports of call to optimize their networks of trade coverage.
"And some two to five years down the road, the volume on this route will justify direct express services from Singapore directly to the East Coast. As market volumes grow, carriers and alliances will compete to differentiate themselves with point-to-point express services," Rodriguez adds.
Estimates for increased Suez traffic run high at the Virginia Port Authority, which reports Southeast Asian cargo growth of 63.8 percent since 2000, and Indian trade alone up by some 200 percent--most of this via the Suez Canal.
"As India develops into more of a manufacturing center, the Suez becomes more strategically important," notes Tom Capozzi, marketing director at the Virginia Port Authority. "And while south China transit time is an additional seven to 10 days through the Suez, some shippers have opted to build time savings into their supply chain operations to take advantage of more economical freight rates. East Coast traffic will grow not at the expense of the West Coast, but because of the growing importance of India and Southeast Asia," says Capozzi.
The tradeoff is whether a favorable rate through the Suez compensates for delays due to the variable number of ports of call along the way.
And it seems that many shippers remain unaware that the Suez Canal Authority (SCA) offers a schedule of discounts that may accommodate their needs. (See sidebar, Assessing the Suez Route.)
Geography and demographics
Many international industry observers regard New York as the "must-call" port on the East Coast, and coming through the Suez Canal is a reverse of the Panama route, with New York often the first stop in the U.S.
"Currently, Southeast Asian and south China cargo represents approximately 14 percent of our total loaded TEUs coming through the Suez Canal," states Peter Zantal, manager of strategic analysis at the Port Authority of New York and New Jersey. "Since transit times by this route have become very competitive with Asian cargo coming through the West Coast, we estimate Suez traffic to grow by at least 10-12 percent over the next few years."
Another point to be considered, he says, is that the New York/New Jersey/Connecticut tri-state area around the port accounts for 12 percent of the disposable income of the U.S. If one includes New England, Maryland, Pennsylvania, and on out to the Midwest including Chicago, that comes to a full 33 percent. And the DCs are in place to handle cargo for this end-user consumer population.
"When all is said and done, just as water finds its own level, cargo will find its most efficient route to market," says Peter Keller, president of NYK Line North America, Inc., Secaucus, N.J.
"Roughly two-thirds of the population of the country lives east of the Mississippi, with most retirees moving into the Southeast. Shippers and carriers have to pay more attention to geography and demographics when making choices about how to move the vast amounts of product coming to the U.S. from Asia."
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Assessing the Suez Route Shippers and carriers should be aware that the Suez Canal Authority (SCA) has in place (and has had in place for some time now) a schedule of discounts relating to traffic through the canal. Called “Facilities and Privileges Granted to Container Ships,” these include provisions regarding exemptions of extra dues on the top tier, waiving of escorting tugboat fees, no surcharges on uncontainerized cargo also on board, and other rate charge matters. For more information, contact the SCA’s spokesperson in the United States: Mr. Ahmed Hosni Consul for Economic & Commercial Affairs Consulate General of Egypt Economic and Commercial Office 10 Rockefeller Plaza–Suite 715 New York, NY 10020 Tel: 212-399-9898 Fax: 212-399-9899 e-mail: egycomm@aol.com www.egyptny.org |
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