Traders upbeat about Israel's new canal project to lower import costs

Traders and shipping agents in Mombasa are optimistic that the cost of importation will decrease once Israel completes the construction of an alternative canal route to the Suez Canal, which is currently inaccessible due to Houthi attacks.

The Jewish state began constructing the artificial waterway, named after Israel’s founding father David Ben-Gurion, last year. The canal, which will cost $100 billion (Sh12.95 trillion), is expected to provide a vital alternative.

The cost of freight from Europe and Arab nations to Mombasa has increased significantly due to attacks by Houthi rebels targeting ships off Yemen. Recently, the Kenya Ports Authority (KPA) reported that the cost of importing goods from Europe to Mombasa has tripled, rising from Sh58,194 ($450) to Sh232,776 ($1,800) per tonne.

KPA and shipping agents noted that all ships from Europe to Mombasa have been rerouted around the Cape of Good Hope, adding an extra 5,459 nautical miles compared to the route through the Suez Canal to avoid the attacks.

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“Ships from Northern Europe to Kenya have seen sea freight rates increase from $450 to $1,800 per tonne,” said KPA Managing Director William Ruto recently.

He added that ships now take an additional 34 days to travel around the Cape of Good Hope.

Yesterday, the Institute of Chartered Shipbrokers Chairman, Elijah Mbaru, stated that the Houthi attacks on merchant ships along the Red Sea have disrupted trade between Europe and Asia.

He explained that these attacks have prompted Israel to revive plans to construct an alternative canal linking the Red Sea, via Israel, to the Mediterranean Sea.

To avoid further disruptions to global trade, Mbaru said stakeholders in the shipping industry are pinning their hopes on Israel to make the project a reality.

“Israel has an ambitious plan to build a 250-kilometre canal connecting the Red Sea to the Mediterranean, which would bypass the Suez Canal,” said Mbaru.

Speaking to shipbrokers, Mbaru noted that the Houthi attacks along the Suez Canal have significantly impacted trade between Europe and Asia, forcing vessels to take the longer route around the Cape of Good Hope.

He added that the attacks have adversely affected Egypt, with revenue from ships passing through the canal dropping by 40 per cent. Egypt has reportedly lost $2 billion (Sh258 billion) since the attacks began.

“Houthi attacks on ships along the Red Sea, particularly on 19 October 2023, led to the temporary shutdown of Eilat Port in Israel and caused Suez Canal revenues to decline by 40 per cent, resulting in $2 billion in losses since the attacks began,” said Mbaru.

He stated that the construction of the new canal by Israel will challenge Egypt’s century-long dominance of short sea routes between Europe and Asia.

According to Mbaru, the canal will originate from the Israeli port city of Eilat on the Red Sea near the Jordanian border. It will flow through the Arabah Valley, enter the Dead Sea, and proceed to Gaza in the north before reaching the Mediterranean Sea.

The canal will also traverse the Negev Desert at the southern end of the Gulf of Aqaba, covering 250 kilometres. The idea for the canal was first conceived in the 1960s during the tenure of David Ben-Gurion, Israel’s first Prime Minister, who ruled after the creation of the Jewish state in 1948.

When completed, the David Ben-Gurion Canal will undercut the Suez Canal, which has been under Egypt’s control since 1956, when the country’s former President Gamal Abdel Nasser nationalised it, taking control from British and French authorities.

Before its nationalisation in 1956, major European powers had signed an agreement in 1888 granting all nations the right of passage through the Suez Canal during both wartime and peacetime.

However, following its nationalisation, Nasser closed the canal on several occasions, particularly after the establishment of Israel in 1948 and the subsequent displacement of Palestinians, an event known as the Nakba.

Egypt blocked Israeli vessels from accessing the canal from 1948 to 1950, which hampered Israel’s ability to trade with East African countries and Asia, as well as its capacity to import oil from the Gulf region.

The Suez Canal, initially constructed by a French company in 1858 and completed in 1868, has been governed by agreements stipulating that it must remain open during times of war. Despite these agreements, the canal has experienced frequent closures and attacks on merchant ships, forcing traders to use longer sea routes to transport goods.

Historically, the French and British governments controlled the canal as a crucial shorter route between Europe and Asia, avoiding the longer journey around the Cape of Good Hope in South Africa.