Interview: Maersk Talks with Egypt Government on Suez Canal Expansion

The Suez Canal Container Terminal (SCCT) needs public infrastructure enhancements to expand, but the government is not enthusiastic about it now, the commercial chief executive (CCE) of the terminal told a group of Egyptian journalists in Copenhagen.

Maersk, the major shareholder in the SCCT, is asking the Egyptian government to fulfil its prior commitment to finance and execute any required deepening of the path leading from the northern main entrance of the Suez Canal to the terminal, Lars Koch-Soelyst, the CCE of SCCT, told Ahram Online. He is also worried about possible negative impacts from the ongoing expansion of the Suez Canal.

The company, which is celebrating 10 years in Egypt, says the enhanced infrastructure is indispensible in order to maximise utilisation of the terminal’s current capacity, but also to expand its capacity to receive larger container vessels.

SCCT is a part of AMP Terminals, based in the Netherlands, that manage more than 65 ports and terminals around the world. The Suez Canal Authority holds a 10.3 percent stake in SCCT, while the National Bank of Egypt has a five percent stake. “We handle 15 percent of local Egyptian trade,” says Koch-Soelyst. In addition, SCCT has a 50 percent market share in Egypt’s container handling.

The market includes three public ports: Damietta (near Alexandria), Port Said West and Sokhna Port, owned and run by DP World. But these ports don’t impinge on SCCT’s strong position in the market as they can only deal with smaller vessels. “We have invested $800 million to date. We are the biggest container terminal in Egypt,” said Koch-Soelyst. The terminal has brought Egypt $350 million in revenues over the past 10 years.

An East Port Said terminal and logistics area were planned by a governmental committee in the mid-1990s that included also Gamal Mubarak. While the logistics area remains unbuilt to date, the SCCT started operations in 2004.

It is not listed in the stock market and its ownership structure is not fully disclosed. According to the company’s website, SCCT is 9.7 percent owned by “private sector partners.”

When asked about these partners, Koch-Soelyst said he doesn’t know precisely who they are, adding, however, that there is an educational service company among them. He promised to send the names of the other partners, but until time of publication had not. According to Koch-Soelyst, the contract between SCCT and the Egyptian government is undisclosed.

Beyond SCCT: Location advantage

Maersk group has five core businesses, many of which present in Egypt: Maersk Line (one of the biggest clients of the Suez Canal), Maersk Drilling (currently operating in the gas sector), Danco (the Maersk logistics arm) and APMT, the major shareholder — at 55 percent — of SCCT.

Maersk Line benefits most from the SCCT and the Suez Canal. In 2013, the equivalent of nine million containers of 40 cubic feet navigated on Maersk vessels around the world. A large portion of these vessels passed through Egypt.

“Some 20-25 percent of Maersk Line volume goes through the Suez Canal. It is a strategic water way, because our main line is between Asia and Europe, there is really no other way around – only a very long detour”

Liner shipping is conducted on a fixed schedule with fixed stops. For Maersk Line, the Suez Canal is the cheapest route. “The fees are very competitive,” Stoorgard added. As well as shortening shipping routes, “larger vessels can pass through the Suez Canal,” explained Stoorgard. The bigger the vessel, the more transport costs are reduced.

According to Maersk calculations, these advantages will still apply even after the Panama Canal in Central America inaugurates its expansion next year. It still will not be able to handle the large vessels that go through the Suez Canal.

Since its creation, SCCT was uniquely servicing Maersk Line. In 2004, they started to deal with other liners too. “Now 55 percent of our services are provided for clients other than Maersk,” said Koch-Soelyst.

A cap on growth?

“Overall, we have achieved solid growth, even during the troubled times after 2011. But Egypt could achieve much more,” said Koch-Soelyst.

“By 2014, we have no more capacity to sell our business to new customers. Which means Egypt will stop getting additional money out of this business.”

The potential capacity of SCCT is 70 vessels per day but the company can only receive 50 (3.1 million containers). “We could be handling more if we had the ability to take more ships. But we don’t because of the convoy system of the Suez Canal. Which means that at some part of the day vessels are heading to the north, in other parts of the day, vessels are heading south, like a one-way road. “This creates inflexibility for us, because we are part of the Suez Canal.”

The original plan was that SCCT would have its own independent entrance on the Mediterranean, away from the convoy system, allowing vessels to have access to the terminal all day long. But the Egyptian government didn’t give SCCT this entrance, ”so vessels cannot access the terminal when the ships are heading north. They can only access the terminal during time gaps during the day, according to the convoy system. And we are using these intervals to the maximum.”

Even worse, the new expansion project of the Suez Canal — aiming to doubling parts of the path — may lessen these time intervals where vessels can access the terminal.

According to Koch-Soelyst, in order for SCCT to grow, the company needs to build a bigger terminal and install bigger cranes, to be able to receive bigger ships, or “we will lose the competition.”

But also, SCCT is requesting a deeper draft, as modern vessels of customers, including Maersk Line, need a draft of 16 meters, “while we can only receive ships that could go 15.5 meters under the water.

The original agreement between SCCT and the Egyptian government, back in 1998, was that the latter would invest and execute any deepening needed for the SCCT by 2004. The additional draft would cost some $80-100 million, a sum that the government could retrieve over three years, because the terminal would be able to handle 1,000-1,500 more containers than its current capacity.

Meanwhile, the government had said that it respects its contractual agreements.

Ahmed Amin, advisor to the minister of transport, told Al-Ahram Weekly that officials from SCCT met with the minister 11 November, where they agreed to cooperate and smooth out their differences.

According to the Weekly, the government is asking SCCT to renegotiates the annex to the agreement signed back in 2007, which was found by several committees to be unbalanced against the government.

The annex extended the concession period for the port from 35 years to 49 years, while according to Maersk officials the concession period of their ports around the world is between 25-30 years. This annex also held the Egyptian government responsible for the deepening of the draft and a new access route from the Mediterranean.

“Right now, we are discussing this issue with the Egyptian authorities. We are hopeful of a solution in the near future. And we are willing to get into an agreement where we could either do in part or in full this investment but I can’t say that the government is enthusiastic about it,” Koch-Soelyst said.

Is it of a lack of money or fear that Maersk would gain more market power that makes the Egyptian government hesitant? Koch-Soelyst can’t tell.

Source: Ahram Online