Tying Together Coats, Ships And Pita Bread
MICHELE NORRIS, host:
We hear a lot of numbers related to this global recession, a lot of different measurements. Here's one we're going to focus on today: 26 percent. That's the drop in revenues at the Suez Canal this February as compared with February of last year. It seems uncomplicated when you hear about it, the 26 percent drop, but a little digging by Chana Joffe-Walt of our Planet Money team led her to some unexpected places.
CHANA JOFFE-WALT: We're going to start in Europe with a woman named Beverly Walding(ph) and a moment with a clothing rack.
Ms. BEVERLY WALDING: I saw a coat in a shop, which I would have considered buying about two years ago. I wouldn't even think about it today.
JOFFE-WALT: Tell me about the coat.
Ms. WALDING: Oh, it was lovely. It was wonderful. It was a lime-green gorgeous coat.
(Soundbite of laughter)
Ms. WALDING: It looked lovely. And then I put it back on the rack. And that was the end of it.
JOFFE-WALT: Beverly is an actress in the U.K. She and her husband wanted to work less. They are 60 years old, so they thought, we'll move out of London, get a cheap house and live off the interest from our savings, which when they moved two years ago was about 6.5 percent. Now it's close to one percent. So Beverly is feeling nervous. Every time she goes to the supermarket, every time she fantasizes about replacing her carpets, every time she goes out to a play she feels nervous.
Ms. WALDING: It becomes an instinct. It's not worth it. It is not worth buying the coat for five minutes of pleasure that you've bought the coat. You come home, you look lovely in it and then you think, oh, I just had a water bill, that's 200 pounds. I shouldn't have bought the coat. I don't want that worry. So it's easier and instinctive not to spend the money.
JOFFE-WALT: I'm not about to say Beverly is in the sorriest situation or something. The point actually is that she's not. She is pretty typical. There are millions of Beverlys all over Europe doing exactly the same thing. In fact, Morten Engelstoft in Copenhagen, he's been squeezing his stress ball just thinking about all of them. He's the chief operating officer at Maersk Line, that shipping company. They ship loads and loads of stuff to Europe every month.
Mr. MORTEN ENGELSTOFT (Chief Operating Officer, Maersk Line): All kinds of commodities that you can almost imagine, a very large part of what is being bought and consumed, actually is manufactured in Asia.
JOFFE-WALT: All the shirts, all the shoes, rugs, toys made in Asia, Maersk ships them to Europe.
Mr. ENGELSTOFT: Very large quantities of various goods from electronics, furniture, car parts.
JOFFE-WALT: And lovely lime-green coats. Beverly doesn't buy that coat, it means Engelstoft doesn't have as much stuff to ship, and he doesn't get as much money. But he still has to pay for his staff and oil. And to get from Asia to Europe and back, he has to pay to go through the Suez Canal.
Egypt charges ships a toll to go through it. Just like you pay at the New Jersey Turnpike or at the Golden Gate Bridge, Engelstoft pays at the canal. And for a large ship, he says it can be as much as $700,000, which has him making a decision he has never made before.
Mr. ENGELSTOFT: We are now making the calculations of the costs between sailing through the Suez Canal, compared to sailing south of Africa. And now it's very clear that there are significant savings by sailing south of Africa.
JOFFE-WALT: So you're changing your entire route.
Mr. ENGELSTOFT: It's more or less the same ports that we are calling, but I certainly would call it a very radical idea. Because if you look at a map, you will easily see that it's almost illogical to sail the much longer distance south of Africa rather than taking the short cut.
JOFFE-WALT: Have you ever done that before?
Mr. ENGELSTOFT: No, we have not.
JOFFE-WALT: Sailing around Africa adds seven days to the trip. But fuel is cheap right now and Suez tolls are expensive, and Englestoft has the same number of ships, he just doesn't need them all to rush to and from ports anymore since people aren't really buying as much. So for Maersk, this kind of strangely makes sense right now.
So, Beverly doesn't buy that green coat, Englestoft loses money. Englestoft decides to send his ships on a scenic route and avoids a toll. Which means Egypt now has less money. Last year, revenues from the Suez Canal were more than $5 billion. But now, remembering our number of revenues are down 26 percent, that's money that normally goes into the government's budget that's now missing, money that pays for hospitals, and roads and wheat.
(Soundbite of crowd)
JOFFE-WALT: Our last stop, a bakery in Cairo. The Egyptian government subsidizes wheat so poor people can get bread for cheap. It's about five cents for a loaf in places like this. Saied Za'ad(ph) is the oven manager. He's been making cheap bread in Egypt for 40 years, since he was 12 years old.
Mr. SAIED ZA'AD: (Through Translator) Flour is available. There hasn't been a single day that we did not receive flour. If they stop sending flour, we shut down the bakery and people will go hungry. This one five cent bread is what is sustaining poor people because anyone can buy it.
JOFFE-WALT: So from coats to ships to pita bread. Now, I do need to say the Egyptian government says it's totally committed to subsidizing wheat, and the U.S. also subsidizes wheat exports to Egypt. So Egypt is not planning to stop its bread program. But just like Beverly Walding and Morten Englestoft, Egypt has to make a decision. It could lower Suez tolls, so far it hasn't done that. And it can borrow, increase its deficit.
The government announced a $3 billion stimulus plan this year. And then they'll cross their fingers that all the Beverlys in Europe stop being so nervous and start buying again, that ships stop sailing around Africa, and come back through the Suez Canal and that things get better - quick.
Chana Joffe-Walt, NPR News.
NORRIS: And the Planet Money team examines the global economy from a variety of perspectives. You can experience them through their blog and their podcasts at npr.org/money.
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