Business review; Suez Canal

From the national educational radio network here is a Business Review ASSOCIATE PROFESSOR ROSS Wilhelm of the University of Michigan Graduate School of Business Administration presents his views and comments of business and economic activity from an economic viewpoint time is running against Egypt in her dispute with Israel since June 1967 the Suez Canal has been closed and Israel has stated it may not be reopened until the entire question of war and peace has been settled. However the entire question of reopening or not reopening the canal will be completely unimportant about two and a half years from now because the Suez is dying economically. Indeed it's entirely possible that even if the canal were reopened today it would still die in two and a half years. Under any circumstances the reason the Suez Canal is dying is not because of anything that's happened to the canal itself the Suez is not dying because of accumulating silver sand or for any other such physical reason. Sue is dying because within 30 months over half the world's fleet of oil tankers will not be able to use the canal and further there is growing doubt that Egypt can dig the canal deeper to accommodate the

huge new super oil tankers the world's tanker fleet has a carrying capacity of about 100 million tons of crude oil. At the present time today there are on order in the shipyards of Japan and Europe ships which will be able to carry 50 million tons of crude. These 50 million tons of carrying capacity are in the form of giant tankers of two hundred thousand three hundred fifty thousand ton capacity. At the present time the world tankers fleet consists largely of ships with a capacity of around 60000 tonnes within 30 months over half of the tanker capacity of the world's fleet will be replaced by these super tankers and the super tankers drop too much water to use the Suez as it was prior to the June 1967 war. In 1067 the canal had a depth of thirty eight feet. Since that time the canal is sealed it up badly of course prior to the war the Egyptian government had plans to deep in the canal the 60 feet. However it is doubtful that if a mere increase in depth would be sufficient to keep the canal alive the fact

is that the canal is not a simple straight waterway. Rather it's a tricky narrow waterway that is difficult for many of today's ships to navigate and might easily be impossible for many of tomorrow's larger ships. The economic difficulties of the Suez loos loom even larger if one projects the size of oil tankers to five years from now. It's fully expected in five years we will have 500 to 800 thousand ton tankers and the ships in all probability will not be able to navigate the canal even if it is deeper. An addition to this it will require many millions of dollars to dig the Suez deeper to pay for this added investment it will require a rise in the tolls on the sewage. And yet higher tolls also may make may make it an economical to use the canal. The pre-war rate for tonnage on the Suez was 60 cents a tonne low to thirty six point thirty six cents a tonne unloaded. It's estimated that if the canal is reopened and deepened it will require a rise in the tolls of at least 12 cents per tonne. However the new supertankers are much cheaper to operate than the

pre-war tankers and even though the new tankers have to go around South Africa in the Cape of Good Hope to travel from the Middle East to Western Europe. If the tolls rise much higher above the 12 Senate ton addition it might still be economical to carry the oil around Africa rather than through the canal. Further when the 500 to 800 thousand ton tankers are operating they'll bring even greater operating economies and will be even more difficult for the canal to compete. The trip from the Middle East to Western Europe takes about 65 days around South Africa. Well it only requires 40 to 42 days to the canal cost about twenty one thousand six hundred dollars a day to operate and finance a super tanker. That's a cost between four hundred seventy five thousand and four hundred ninety seven thousand dollars additional to go around Africa rather than through the canal with a super tanker. However the tolls on the canal reduce the savings in its use. Of course and any increase in the tolls reduces the advantage of using the kind of now at the tolls were raised to 72 cents a tonne loaded this alone would absorb over two hundred thousand dollars

of the savings which arise from using the canal and other operating costs additions could easily offset the remaining difference in the recent months Egypt has taken many steps to prepare for reopening the canal they have sought to secure permission from Israel to remove the 15 ships trapped there by the war. In addition surveys indicate that will be relatively easy to remove the underwater obstacles to passage and finally drudgeries have been brought to port saïd from Russia. Whether Israel permits the canal to be reopened is another question. If Israel does not permit the canal to be reopened soon however it will lose this power as a bargaining point in the peace settlement. In addition the longer the reopening is delayed the more the Egyptians will be encouraged to build an oil pipeline linking the two ends of the canal instead of changing the canal itself to accommodate the supertankers that was Associate Professor Ross Wilhelm of the University of Michigan Graduate School of Business Administration. With his views and comments on business and economic activity Business

Review is recorded by the University of Michigan Broadcasting Service. This is the national educational radio network.