Bad news for Suez Canal as global shipping index bottoms out

The Suez Canal has posted year-on-year declines for nine months in a row as of October, and global trade metrics suggests the situation is unlikely to improve in the near future.

The Baltic Dry Index, which tracks shipping prices for industrial commodities and is considered a barometer for the global shipping trade, bottomed out last Friday at 498, the lowest level in the index’s 30-year history.

By Monday, the index had recovered slightly to 516, in line with levels recorded in February 2015, the index’s previous low-point. Although peaks and troughs are common for the index, it has historically shown a strong uptick in the final months of the year. This year, the Baltic Dry Index has been in decline since August.

Citing data from the Shanghai Containerized Shipping Index, news agency Reuters reported on November 20 that the cost of shipping freight from Asia to Northern Europe declined by 70 percent in three weeks, outpacing declines in shipping from Asia to the United States.

The Suez Canal is one of the primary arteries for this trade route.

Drops in the Shanghai and Baltic indexes can reflect an oversupply of cargo space as well as declining trade volumes. However, the drop comes in tandem with news of declining demand for iron, coal and other raw materials in China, as well as grim financial news from global shipping companies.

Suez Canal rev October.jpg

Suez Canal revenues

Suez Canal revenues also appear to be tracking a global decline in trade, with October tolls falling to US$449.2 million, compared to $482.3 million in the same month last year.

The declines come despite a multi-billion dollar project to expand the Suez Canal. Egyptian officials claimed the project, which was built with LE64 billion raised by selling high-yielding bonds to the public, plus at least $850 million worth of bank loans, would more than double canal revenue, bringing it from $5.5 billion in 2014 to $13.5 billion by 2023.

Analysts argued that achieving such returns would require sustained global economic growth rates of between nine to 10 percent. The World Trade Organization forecasts 2015 growth at 2.8 percent, and 2016 growth at 3.9 percent.

As of the end of October 2015, the Suez Canal has brought in $4.34 billion, compared to $4.58 billion at the same time last year.

Global shipping indexes suggest the downward trend is unlikely to reverse itself in the coming months.


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