The New Suez Canal

Massimo DEANDREIS

SRM Managing Director

Cairo, November 29th 2015

2

� The Growth of Mediterranean

Trade

� Strategies and Trends

� Big Phenomena and the Impact

on Ports and Shipping

Main Topics of the Study

3

South MED: a Fast-Growing Area

GDP: South MED vs EU. Constant prices (1970=100)

� The cumulative GDP of Southern MED countries in 2014 was almost 6 times higherthan in 1970, with an average annual growth of 4.1% (Egypt: 5.6%). The EU recorded anannual growth of 2.2% in the same period.

� The cumulative Foreign Trade of Southern MED countries in 2014 was almost €750 bn(1/6 compared with EU’s foreign trade). It was almost 5 times higher than in 1995, with anaverage annual growth of 9.4% (Egypt: 11.3%), higher than the EU’s one (6.3%).

Source: SRM on Unctad data

Foreign Trade: South MED vs EU. 1995=100

100

200

300

400

500

600

700

800

900

1000

1100

197

01

97

21

97

41

97

61

97

81

98

01

98

21

98

41

98

61

98

81

99

01

99

21

99

41

99

61

99

82

00

02

00

22

00

42

00

62

00

82

01

02

01

22

01

4

South Med EU

European UnionAverage Annual Growth:

+2.2%

South MedAverage Annual Growth:

+4.1%

0

100

200

300

400

500

600

700

South Med EU

South MedAverage Annual G.

+9.4%

European UnionAverage Annual Growth:

+6.3%

4

South MED: a Fast-Growing Area

GDP: South MED vs EU. Constant prices (1970=100)

� The cumulative GDP of Southern MED countries in 2014 was almost 6 times higherthan in 1970, with an average annual growth of 4.1% (Egypt: 5.6%). The EU recorded anannual growth of 2.2% in the same period.

� The cumulative Foreign Trade of Southern MED countries in 2014 was almost €750 bn(1/6 compared with EU’s foreign trade). It was almost 5 times higher than in 1995, with anaverage annual growth of 9.4% (Egypt: 11.3%), higher than the EU’s one (6.3%).

Source: SRM on Unctad data

Foreign Trade: South MED vs EU. 1995=100

100

200

300

400

500

600

700

800

900

1000

1100

197

01

97

21

97

41

97

61

97

81

98

01

98

21

98

41

98

61

98

81

99

01

99

21

99

41

99

61

99

82

00

02

00

22

00

42

00

62

00

82

01

02

01

22

01

4

South Med EU Egypt

European UnionAverage Annual Growth:

+2.2%

EgyptAverage Annual Growth:

+5.6%

South MedAverage Annual Growth:

+4.1%

0

100

200

300

400

500

600

700

South Med EU Egypt

South MedAverage Annual G.

+9.4%

European UnionAverage Annual Growth:

+6.3%

EgyptAverage Annual Growth:

+11.3%

5

Italy-South Med Trade: +81% in the 2001-2015 period� Trade relations between Italy and Southern MED countries (net of Energy products)

is estimated at € 35.5 bn in 2015, +81.2% compared to 2001; Italy-Egypt trade: €3.5bn in 2015, +80.3% compared to 2001

� Competitors’ performances in 2001-2015 period: France: +76%; Germany: +125%.

� Italian exports vs. Southern MED countries doubled in the 2001-2015 period (€ 28 bn).

� Italy’s exports vs. South Med and Gulf (€45.9 bn) are equal to Italy’s exports vs. Chinaand the US combined (€46.8 bn).

Source: SRM on Eurostat and data

Trade with the South Med Area: Italy and European Competitors. €bn

* SRM estimates

19.6

35.5

25.0

44.1

24.6

55.2

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Italy France Germany

Germany

France

Italy

6

Italy-South Med Trade: +81% in the 2001-2015 period� Trade relations between Italy and Southern MED countries (net of Energy products)

is estimated at € 35.5 bn in 2015, +81.2% compared to 2001; Italy-Egypt trade: €3.5bn in 2015, +80.3% compared to 2001

� Competitors’ performances in 2001-2015 period: France: +76%; Germany: +125%.

� Italian exports vs. Southern MED countries doubled in the 2001-2015 period (€ 28 bn).

� Italy’s exports vs. South Med and Gulf (€45.9 bn) are equal to Italy’s exports vs. Chinaand the US combined (€46.8 bn).

Source: SRM on Eurostat and data

Trade with the South Med Area: Italy and European Competitors. €bn

* SRM estimates

19.6

35.5

25.0

44.1

24.6

55.2

5.1

52.6

37.7

57.8

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Italy France Germany China USA

Germany

France

Italy

China

USA

7

27.8 32.0 Spain30.3

37.0 France

36.4 41.0 Italy

26.0

31.6 Germany

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

€ Bn

Spain France Italy Germany

The Mediterranean Basin is Becoming a Central Item in the World Agenda: Italy is 1st in Sea Trade

� The freight traffic in the Med basin increased by more than 120% in the 2000-

2014 period.

� The Mediterranean catches around 19% of the global freight traffic; the

percentage was 15% in 2005.

� With € 36.4 bn, Italy is the biggest sea trade partner of the South Med Area.

� 76% of trade between South Med Area’s and Italy travels by sea.

Fonte: Eurostat, 2015

Southern Med Area’s Maritime Trade with the Main EU CountriesForecasts*

* Forecasts SRM

8

47%

8%

12%

7%

7%

7%

2%2% 8%

Northern Range43%

South Med10%

West Med12%

East Med11%

Black Sea6%

UK*7%

Atlantic2%

Baltic Sea2%

Italy7%

2008 2014

The Analysis of Container Ports by Geographic Area: acomparison between Med Area and North Europe

� In the 2008 - 2014 period, the ports of the East Med Coast increased their

market share from 7% to 11%. The Southern Med Coast grew too.

Source: SRM on Port Autorities

MED AREA ISGROWING

NORTHERN RANGE IS SLOWING

9

5%

18%

17%

18%

7%

19%

12%2%

2%

Tanger Med

11%

Gioia Tauro

11%

Port Said

15%

Algeciras

17%

Damietta

3%

Valencia

16%

Marsaxlokk

11%

Cagliari

3%

Piraeus

13%

20082014

Ranking of Container Hub Ports in the Mediterranean Basin: the Market Share

Source: SRM on Port Autorities

� 2009–2014: The Market Share of Southern Hub Ports (Tanger Med; Port Said;

Damietta) is stable at 30%. Algeciras ranks 1st.

� Tanger Med and Piraeus have had a dramatic growth.

� Egypt plans to complete a side Channel in the East Port Said near the Suez

Canal in order to speed up shipping and allow ships to enter the port by the end

of June 2016 this new side channel will increase traffic.

10

New Centrality of the Mediterranean: The Emergence of Europe-Far East Route

27%

44%

53%

42%

20% 13%

1995 2014

Transatlantic

Transpacific

Europe-Far East

Estimated containerized cargo flows on major East–West container trade routes, 1995–2014(percentage TEU)

Source: SRM on Unctad, 2015

� Within the three main deep sea East-West shipping services the Europe-Far Eastprogressively gained traffic raising its share from 27% in 1995 to 44% in 2014.

� In 2014, the Europe-Far East and the Transpacific are definitely the two biggest tradelanes, accounting both for 22 mln. TEUs of traffic. As a result of this growth, theMediterranean basin and its ports recovered their own “centrality”, thanks to the transit

of (almost) all mother vessels via the route Suez.

11

� Transit goods account for 8-10% of the entire globe. In 2014, 822 million tonnesof goods passed through the Canal.

� Between 2000 and 2014, north-south container trade volumes grew by 187% whilethe south-north ones grew by 220%.

� 17.000 ships passed through the canal.

� Between 2000 and 2014 the Canal’s traffic trends recorded a 120% increase in transitgoods.

The traffic in the Suez Canal: Ships and Cargo

0

100

200

300

400

500

600

700

800

900

-

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014 2015

Carg

o t

on

(m

illi

on

)

Sh

ips n

um

ber

(th

ou

san

d)

Ships Number of which containerships Cargo

Source: SRM on Suez Port Autority, forecasts 2015

12

Source: SRM on Suez Canal Authority, 2015

Main Cargo Flows Southbound through the Suez Canal. Var. % 2001-2014

416 mln tons

13

Source: SRM on Suez Canal Authority, 2015

Main Cargo Flows Northbound through the Suez Canal. Var. % 2001-2014

406 mln tons

14

Dubai

JeddahKhor

Fakkan/SharjahSalalah

Shahid RajaeeDammam

-

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

2009 2010 2011 2012 2013 2014

Port Country

∆∆∆∆ % 2009-2014

Dubai UAE 36.9

JeddahSaudi Arabia 35.9

KhorFakkan/Sharjah UAE 38.2

Salalah Oman -13.9

Shahid Rajaee Iran -35.9

DammamSaudi Arabia 42.6

Gulf 23.2

The Strategic Role of Ports and Logistics in the Gulf

� The UAE retained its position as the best performer among Arab

countries and the broader region.

� Dubai Port ranks 1st handling 15,2 million TEU in 2014 and growing by

more than 36% in the period 2009 - 2014.

� Overall, the container traffic of the Area grew by more than 23% in the

in the period 2009- 2014.

Gulf Area’s Container traffic 2009-2014 (000 of tonn)

Source: SRM on Port Authorities, 2015

15

New Panama Canal’s Limit

New Suez Canal

Two Big Phenomena in the Maritime Economy:1. Increasing Ship Size

13,200 TEU

16

The Orderbook for 2018

17

2. The Big Alliances among Carriers

Source: Drewry, 2015

The big alliances «2M» and «Ocean Three» are mostly active on the route Asia-Med

2M

32%

O3

19%

CKYHE

26%

G6

23%

Asia - North Europe

2M

39%

O3

27%

CKYHE

20%

G6

8%

Others

5%

Asia - Med

� The big alliances create economies of scale-reducing costs, improving profitability,services and environment.

� There is a relevant interest of big alliances for routes through Suez Canal.

MARKET CONCENTRATION IN TWO ROUTES THAT INVOLVE SUEZ

18

Suez Panama

Trade route Distance (Nautical miles) Days of sailing Days of sailing

Shanghai-Rotterdam 10,525 29 37

Hong Kong-New York 11,593 32 31

Shanghai-New York 12,370 34 30

Shanghai-Houston 13,932 39 28

An Example of the New Suez Canal Impact: Route Benefits

� The graph shows 4 examples of routes and the impact of the New Suez Canal

Case studies on a panel of strings

=

=

Route where Suez is already more

convenient

Route where Suez will be much more

potentially convenient than Panama

Route where there are no

significant effects

Route where Suez will be more

potentially convenient than Panama

19

� SRM estimated that using the Suez route, any shipping company may have anaverage saving between 5% and 10% on the total operating costs(depending on routes, distances and companies characteristics).

� For each ship, the time reduction from 18 to 11 hours, due to the New SuezCanal, would lead to an estimated cost saving of:

The Economic Impact of the New Suez Canal: OperationalCost Savings and Lower Costs of Immobilization

Total Average expected saving

will be: €180 m per year

South East Asia €61 m North West Europe, U.K. €49.4 m Arabian Gulf

€48.4 m

If we consider that, in 2014, 17,148 ships passed the Canal, 6,129 of which were containerships:

• €10,499 for each ship (average)€12,004 for each containership

€150,000 for each cruise ship

Lower costs of immobilization cargo

will be: €154.6 m per year

20

Estimated benefits by 2030:

New Suez Canal:

The direct economic benefits for the operators in the

transport sector

€4.4 billion

Reduction of operating costs

(net current value):

€2.5 bn

environmental benefits + reduction in the number of hours spent waiting

and for anchoring operations of all the ships transiting the Canal.

Indirect

benefits:

Lower freight immobilization

(net current value):

€1.9 bn

Current and Future Benefits of the New Suez Canal

Lower operational costs for

maritime companies: €180 m

Lower costs of immobilization

of cargo: €154.6 m

Current benefits

21

The additional quantity of TEU that will

sail the Mediterranean via Suez

Case study only on one route: Far East-East Coast US

25%If the New Suez Canal catches this Percentage

of the total traffic through Panama

1 m TEU

18%

171,000The amount of TEUs that Italy can intercept

The Economic Impact of the New Suez Canal on Italian Ports

Italy market share of the Transhipment traffic

in Med

� A case study on the trade route Far East-East Coast US (accounts 7.4 million TEU)(Source: Alphaliner)

51% pass throughPanama Canal

3.8 m TEU

49% pass throughSuez Canal

3.6 m TEU

22

� 170 ships operate in the cruise market, 67 of them passing through the SuezCanal.The enlargment of the Canal could increase the number of cruise forthe major Egyptian ports (Hurgada, Safaga and Sharm El Sheikh).

As a result:

1. New structured packages dedicated to the Red Sea could be offered as a newitem by major operators.

2. It could de-seasonalize the offer extending the cruise season to autumn andwinter also providing tours and cultural excursion across the SouthMediterranean, the Red Sea and the Gulf.

The Effects of the Enlargment for the Cruiser Market may bring Development

Estimated

Benefits

� In the medium term, the impact could be about 4%

of the market value of the Mediterranean, equal to

1,000,000 cruise passengers in the 5 main ports of the

Red Sea.� economic direct impact of €120 per passenger.

23

Conclusions

� The New Suez Canal will have a major impact onshipping and trade in the Mediterranean.

� It will increase the centrality of the Mediterranean as

a bridge among Asia, the Gulf and the East Coastof the North America.

� The two phenomena of naval gigantism and

shipping alliances will be emphasized by the New

Suez Canal.

� Italy is one of the European countries that could

benefits more from this new infrastructure.

24

Thanks for your attention

Websites: srm-maritimeconomy.com

srm-med.com

SRM Maritime Observatory

2011

2014

SRM Mediterranean Observatory