It's hot here--very, very hot. I am in the Suez with temperatures of 104F. I find myself sitting in the press tent at the Grand Opening of the New Suez Canal with one hundred reporters from around the world. Restricted to the tent, we cannot leave due to security.
August is hot in Egypt, but it is not your average hot August day here. Even the reporters from Jordan and Bahrain are commenting on the sweltering heat in the Middle East this year. Held hostage in this stifling press room, we are miserable, watching the ceremony on a large screen far away from the actual event. The English translation is bad. (I would have gotten the same amount of value watching the ceremony from the comfort of my hotel room.)
It is the kind of day where sweat pools on your forehead and drips uncontrollably down your shirt. There are no towels or napkins to wipe my brow. The flies are also intense. Posting this story, I have to swat the black swarms as I type. I am making a mistake every other word. So bear with me as I share my insights on the Grand Opening of the New Suez Canal. It is fascinating to me to see the pomp and circumstance play out on the screen for the world, and personally experience the tough situation for the world press covering the event.
The Journey
The ride from Cairo to the Suez Canal was long with many, many security procedures. Searched at every checkpoint, the trip took five hours from Cairo to the Suez. We were packed like sardines in a crowded bus with no toilet facilities. On the journey, armored guards accompanied us (think tanks and machine guns) on each side of the vehicle.
The buses were marked "Press" and crowds cheered and waved Egyptian flags on our journey. Signs hung from the apartments and the night skies were ablaze with lights. No doubt about it. The Suez opening was a big event in Egypt. Billboard signs of President el-Sisi and Admiral Mameesh lined the roadway. The day was declared a national holiday. (Since the Egyptian work week is Sunday through Thursday, getting a Thursday off made for a long welcome weekend for Egyptian residents.) Saying that Egypt was in a Celebratory mood about the Egyptian canal is an understatement. The ceremony for the opening was equal to Olympic quality with singers, beautiful aeronautics, and elaborate entrances of the heads of state from the neighboring countries.
Sitting in the United States, and avidly following the evolution of supply chain and global trade, I did not realize that the goal to complete the Suez expansion within one year, not the originally stated plan of three years, was a nationalist symbol for the new regime. Instead, I viewed it as a long-term infrastructure project. I was wrong. The government positioning is that the canal represents the new and prosperous Egypt. As I settled into my hotel on arrival, this was very clear. So I found myself, as part of a press corp, a pawn in the government's efforts to spin a grand story.
I will post this story after I arrive in the United States. I am not sure that it is really a grand story and Egypt is not kind to press at the moment. (The opening of the New Suez canal would have been a great time for el-Sisi to signal freedom of speech and pardon the three Al-Jazeera journalists.)
The ceremony was a celebration of Egypt's greatness. It was Egypt talking about Egypt for the sake of Egypt. While el-Sisi promises that the canal is a symbol of global expansion and is a gift from Egypt to the world, I see it as a nationalistic symbol of the revolutionary regime. While the government has made great promises of an increase from $5.3 billion to $13.2 billion in annual revenues from Suez Canal traffic to the Egyptian citizens that raised $8.5 billion in six days in bonds to fund the effort, let's examine the facts. I don't see that this infrastructure project will lead to this level of short-term gain:
1) A Big Bet. Trade Is Shifting with a Downward Trend. The design basis of the Suez Canal is to almost double the number of ships that can pass through the canal. However, with slowing growth and the shifts in China, the opportunity today is less about the movement of goods to and from China. North American companies are reshoring and near-shoring. As a result, South America and Latin America are playing a more dominant role, and they do not need to access the Suez Canal. To fund the canal, revenue would need to increase 9% a year which William Jackson, senior emerging markets economist at the London-based Capital Economics group, believes to be unlikely.
2) Changing Supply Chain Dynamics Make It Worse. Demand globally is down, and the molecules and inputs of the supply chain are changing. 3D printing and robotics will be a major force in redefining the automotive and electronics industry. This redefinition of global manufacturing will not require ocean transport.
3) Bucking the Trend. Faster Ships in the Suez Fly in the Face of the Current Trends in the Industry. Today there is more shipping capacity than demand. To cut costs, the current trend in ocean freight is slow steaming. Through slower transit (traveling at 18 knots), shipping companies can improve fuel consumption by 59%. This adds 4-7 days to a trans-Pacific voyage. For a large container ship like the Emma Maersk, slow steaming saves 4,000 metric tons of fuel on a Europe-to-Singapore voyage. This translates to a savings of $2-$5 million per trip depending on the price of oil.
The second trend is larger ships. The Suez project speeds transit time, but with a current depth that will accommodate 66 feet of draught, the New Suez Canal will not be able to handle the super tanker or a fully-loaded Triple-E ocean freight vessel. Why is this important? Larger ships are dominating the industry at a rapid rate. A fully loaded ship requires more draught, or depth, than a partially loaded vessel. Shipping vessels continue to evolve with shipping being more complicated as larger and larger ships are added to fleets. The average container ship increased in size from 5,000 containers in 1998 to 18,000 per ship today. So, even though the rate through the canal can increase from 49 to 97 a day, with more containers on ships in a declining market, this is probably not the reality.
Which leads to the economics of what is charged also being of issue. There will be fewer ships; and even though the canal charges based on tonnage per trip, supply chain leaders fear that the prices per trip will be too high. Prices increased by 5% in 2013 despite international pushback.
4) Making Egypt a More Desirable Place for Commerce. Will Investment Follow? Manufacturing companies are looking for safe locations with a skilled workforce. The building of the Suez is not the magic bullet. As I stared out the window of my bus on the ride to the Suez, and saw the end of the barrel of a machine gun, I did not feel safe. While the speech by the Egyptian president had many words around safe, words do not make a safe environment for commerce. People do not want to live in fear. A more tolerant attitude to the press would be a good symbol for a "new Egypt." El-Sisi remarked in his speech, "...terrorist groups are trying to harm Egypt and Egypt's fight against terrorism is ongoing..." Commerce and industrial investment will not succeed in a military state.
Investment also requires a skilled workforce. Currently in Egypt, there are two Universities teaching supply chain management (The American University in Cairo and The Arab Institute for Trade and Commodities Exchange), and finding local talent for companies like P&G, locating in Giza in 2004, was problematic. The good news was that P&G, unlike other global multinationals, provides extensive training for employees. On the night before the opening of the Canal, I had dinner with a number of students. They expressed their frustration.
5) Egypt Cannot Succeed in This Project Talking to Egypt. The presentation at the opening session was all about the benefits of the New Suez Canal for Egypt. However, Egypt talking to Egypt will not drive success. The global multinational needs consistency in government, trade regulations, and supportive government relations. This infrastructure within the fabric of government will take far longer than the year to build the New Suez Canal.
So, is the canal a symbol of a new Egypt? Yes. However, a more important question is unanswered. It is: "Is this an Egypt where the world wants to invest?"
Is this canal a gift to the world? Again, I say "Yes." However, there are many unanswered questions. Sometimes, the gift in the box when it is unwrapped is not what the receiver needs. In this case, it must be regifted. Despite all the pomp and circumstance, waves and smiles, this, I believe, is the story of the New Suez Canal.
