Those Ships And Their Detours

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Cheaper passage soon?

Right after we took our audio tour from the U.K. to the Suez Canal to an Egyptian bakery, came some news from the Suez Canal. Our Maersk Line executive told us he was sailing his ships around Africa because fees at the Suez were too high. The Suez wasn't budging on rates. Now looks like they may be open to negotiation. Looks like the Panama Canal is, too.

Plus listener Alex Hoffman wanted clarification on that Suez story:

I think you got some things on the Suez Canal story wrong, or at least left some things out.

1) It sounded like the shipper is worried about losing money, not that he is already losing money. That is, he looks at a declining market and is acting proactively to keep from losing money.

2) There is a big issue with the Suez being overpriced. If it costs so much more money to go through the Suez than to go around the coast of Africa, they are not pricing appropriately. If Egypt lowers its price — supply and demand, right? — they'll get more traffic. They need to figure out new pricing for the new economy.

3) The real key here is that the shipper's capital is in his ships. The more trips his ships can make, the more money he makes with his capital. The Suez has been a way to to make more trips, a third more! And that has meant more profit. Now, however, he is voluntarily cutting back on how many trips his ships can make, down by a quarter! That's exactly like factory owner who shuts down his factory for a week each month because no one is buying.

4) The owner would not idle his factory for a week a month if he could sell the goods. And the shipper would not slow his ships by 25% if he had the customers to keep them busy — unless the Suez's prices kept it from being worth the increased traffic.

That means capital is not being used as efficiently as it was before, that there enormous unused capacity, lots of missing GNP, or GGP (Gross Global Product?). So, we've got less employment at the loading docks in Asia and the unloading docks in Europe because there are 25% fewer trips being made. Fewer taxes along the way — Suez Canal charges, whatever charges the nations at each end charge for docking, etc.. Less here, fewer there.

It's not just that the shipping route now takes longer, though that is true. The big thing you missed is that there are now fewer trips being made.