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Wednesday, 20 April 2022

The Russia-Ukraine war has limited Egypt’s shipping options

How the Russia-Ukraine war is impacting shipping in Egypt: The ongoing war between Russia and Ukraine has piled on further pressure on an already-strained global supply chain, with soaring oil prices causing freight costs to jump, and container ships forced to use alternative routes as key ports remain closed. Global shipping giants, including Switzerland-based MSC, Denmark's Maersk and France's CMA CGM — all of which operate in Egypt — have all suspended routes to and from Russia until further notice. But the biggest challenge facing companies in Egypt looking to ship goods in and out of the country, is finding available space on board container ships for imports and exports, several sources speaking to Enterprise have said.

In general, it’s getting harder to reserve container ships for inbound and outbound cargo: Companies have been facing increasing difficulty when it comes to reserving vacancies on container ships for their outgoing or incoming shipments to and from several markets, not just Russia and Ukraine, Ayman El Sheikh, head of the International Transport and Logistics Division at the Cairo Chamber of Commerce, told Enterprise. Coupled with the supply chain disruptions that began with the covid-19 pandemic, “it is not possible to predict a breakthrough soon,” he said.

Where did this issue come from? An uptick in demand for commodities from the US pushed shipping lines to pull empty container ships from certain markets and reroute them to others, leading to a rise in freight costs and a shortage of container space, the head of French shipping company CMA CGM’s Sudan and Egypt unit, Tariq Zaghloul, told Al Mal previously. And Egyptian importers and exporters are unable to cover the premiums that come with competing with the US to get priority in reserving container ships, a major shipping agent who asked to remain anonymous told us.

And increased costs aren’t helping things: Higher input prices, such as fuel, have also added to the world’s logistical challenges by driving up costs, Mostafa Ibrahim, a senior project manager at advisory firm Impact Insights, said during the 2022 Marlog conference. With oil currently trading at above USD 100 per barrel, the logistics sector is facing significant cost increases, as fuel represents 60% of the cost of a sea voyage for merchant ships, VP and CEO of Egyptian International Shipping Group Mohamed Abou Hashish told Enterprise. The escalation of oil prices on the back of the war have increased freight rates by an additional 5-10% so far, Abou Hashish added.

The shipping market in Egypt currently does not have a viable solution to independently address this shortage of container space due to the lack of national shipping lines, a sufficient shipping fleet to transport our trade, or enough storage and warehouse options, El Sheikh said. International conglomerates have acquired several local shipping and logistics companies in the past few years under the pretext of providing integrated services to their customers, but this resulted in these conglomerates monopolizing the market and controlling prices, he added.

Expect shipping ins. to get more complicated: The cost of ins. for shipments in the Black Sea area has soared, with ins. providers now charging up to “10% of the value of a ship’s hull — basically the vessel’s worth as an asset — for what is called additional war-risk premium,” Bloomberg reported recently, citing market players. Local ins. companies, meanwhile, are in wait-and-see mode to determine the rate of insuring shipments of goods from Russia in light of the increased risks, Misr Ins. Managing Director Omar Gouda told Enterprise.

Our agricultural trade with Russia + Ukraine specifically is in question as some shipping lines suspend their Black Sea routes: Egyptian exporters rely on Israel’s ZIM line — which departs from Dekheila Port in Egypt to the ports of Novorsysk in Russia and Odessa in Ukraine — to export to Ukraine and Russia, Waleed Badr, chairman and CEO of shipping company EgyMar, previously said. However, this line has since been suspended due to the war. The Ocean Network Express, one of the world’s largest refrigerated container lines, also indicated that its operations continued to be disrupted in the port of Odessa in Ukraine and the ports of Saint Petersburg and Novorossiysk in Russia “due to the continuing hostilities between the two countries.”

…Which has pushed the Sisi administration to find alternative markets for our commodities needs: The Agriculture Ministry added India as a new wheat import origin earlier this month, and is also in talks with Pakistan and Mexico to import wheat, as we look beyond Russia and Ukraine (which typically supply c.80% of our wheat needs).

But new markets come with their own host of problems: Switching to other wheat exporters will incur additional shipping costs for Egypt. Romania and France are the closest potential suppliers in terms of distance, but cannot provide the required quantities in full. Instead, Egypt could look to the Australian and US markets — estimated to be twice the distance between them and Egyptian ports in Ukraine, for example — pushing up shipping costs in addition to increased price of a ton of wheat, explained Abou Hashish and Damietta Chamber of Shipping Chairman Abdel Azim El Reedy.

The silver lining: The Suez Canal may witness an increase in the number of ships transiting between Gulf countries and Europe — especially liquefied natural gas tankers and bulk ships carrying grain — as alternative markets to Russia and Ukraine, Suez Canal Authority Head Osama Rabie told Enterprise. The Suez Canal could achieve additional revenues of EGP 20-22 mn per month, especially after the authority decided that LNG carriers will pay the full rate to transit in March, Rabie predicts.

This could also be a good time to focus on expanding exports to Africa: The continent is experiencing a logistics boom with increased investments pouring in, Ibrahim said. Egypt should take advantage of the situation by providing raw materials or increasing exports to African nations, he added.

Your top infrastructure stories for the week:

  • Egypt to increase LNG exports to Europe with Eni: Eni signed an agreement with the state-owned Egyptian Natural Gas Holding Company (EGAS) designed to “maximize” Egyptian LNG exports to Europe and boost Eni’s gas production here.
  • Gov’t to offer 19 desalination projects to private-sector partners: The government will soon offer nineteen water desalination projects with a combined production capacity of 3.3 mn cubic meters/day for the private sector to bid on.
  • Infinity launches EV charging stations in the Delta: Renewable energy player Infinity has opened seven new electric vehicle (EV) charging stations in the Nile Delta, marking its debut in the region.
  • Progress on Dabaa: A Russian delegation has visited the site of the Rosatom-led Dabaa nuclear plant to check up on the progress of groundwork, and French consulting and engineering firm EGIS is looking into taking part in the plant’s construction.
  • 2Africa subsea cable makes first landing in Genoa, Italy: The 2Africa consortium including Telecom Egypt announced the first landing of the 2Africa cable in Genoa, Italy.

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