Analyzing the Suez Canal

The Suez Canal had its 150th inaugural anniversary last week.  Since opening on November 17, 1869, it ushered in a new shipping era dominated by steam ships, gave reason to both create a single registration authority and standardize how ships are measured for fair toll treatment, influenced ship design and facilitated Asia’s economic growth through the 20th century.  By providing the shortest maritime-route between Europe and Asia via a 100 mile (160 km) long canal connecting the Mediterranean and Red Seas at Port’s Said and Tewfik, respectively, the Suez Canal quickly became one of world’s most important waterways – strategically and economically – and has remained in that category ever since despite geopolitical instability.

“Using Global Vigilance VSS, we project total transits in 2019 should exceed 2018 since over 17,000 transits have been made this year.”

Commercial steamers mostly used the Suez Canal for nearly a century as sailing vessels were ill-equipped to navigate through variable wind conditions and marine motor technology was in its infancy.  Approximately 3,000 transits per annum or eight transits per day occurred between 1870 and 1940, a relatively stable amount for a half century.  Modest increases to that amount occurred over the next 27 years prior to its eight-year closure starting on June 5, 1967.  Then, over the ten years after re-opening on June 5, 1975, the number of transits per annum nearly quadrupled on average, but has struggled to achieve consistent growth ever since.   Having peaked in 1982 at 22,545 or 62 per day, the total number of transits per annum has passed 20,000 only four times – 1983, 1984, 2007 and 2008.  For reference, there were 18,174 transits in 2018 or nearly 50 transits per day.

Despite inconsistent transit growth, the total net tonnage passing through the Suez Canal has steadily increased almost every year since opening – up from 436,609 tons in 1870 (first full year of operation) to 1,139,630,000 tons in 2018.  Larger, higher-capacity vessels were used for transporting goods to offset the use of more, lower-capacity vessels at higher operating costs, collectively.  Though expensive to transit, especially for larger, underutilized vessels as the toll rate is typically more than $250,000 USD, the Suez Canal has significant competitive advantages in geography and logistics and the Suez Canal Authority, in addition to infrastructure control, has pricing power to adjust tolls and fees based on market conditions.  Therefore, net tonnage increases are expected to continue.

Suez Canal AOR.  Global Vigilance.  All rights reserved.
Suez Canal AOR. Global Vigilance. All rights reserved.

Through yesterday, November 26th, over 1,400 vessels transited the Suez Canal this month.  Using Global Vigilance VSS, I quickly created an area of responsibility (AOR) around the Suez Canal region, including its lakes and passing bays.  Then I used filters to narrow down the results by removing auxiliary support units, such as tug and surveying vessels, based on vessel type on the Dashboard.  Since there are still four full days left in this month, total transits should exceed – just barely – the same period last year.  Additionally, total transits in 2019 should exceed 2018 since over 17,000 transits have been made this year despite weakness in a couple months.

Separately, having been asked who the main companies are that use the Suez Canal, I opened the Data Viewer.  VSS Data Viewer is the business intelligence capability that enables users to visually analyze maritime data.  With its reporting feature, I launched a Treemap Visualization to show a relative usage comparison by company and vessel type.  China COSCO Shipping Company, Moller-Maersk and MSC are among its major consumers.

Suez Canal Treemap. Global Vigilance.  All rights reserved.
Suez Canal Treemap. Global Vigilance. All rights reserved.

For more information, contact us about how we can help you monitor areas of interest.





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Global Vigilance

Unknown Vessels Involved in Illegal Activities

“As enforcement agencies improve their capabilities via technology and training and information becomes more readily available, criminals constantly find ways to evade being caught and getting their goods seized.”

Through the first half of 2019, some of history’s largest illicit drugs and prohibited goods seizures occurred at ports worldwide.  Just last month, German Customs confiscated 4.5 tons of cocaine worth $1.1 billion at the Port of Hamburg and the Greek Coast Guard confiscated 5.25 tons of Captagon pills worth $660 million at the Port of Piraeus.  In June, US Customs confiscated 20 tons of cocaine worth $1.3 billion at the Port of Philadelphia.  In February, Hong Kong Customs confiscated 11.5 tons of pangolin scales and ivory worth $62 million at the Port of Kwai Chung. Those were the largest single haul seizures in the history of Germany, Greece, US and Hong Kong, respectively.

Despite the magnitude of those events, authorities did not release the name of the vessels used to smuggle the goods – except for US Customs; however, US Customs also chooses to selectively release vessel names as public information.  We have found that authorities worldwide only release a vessel’s name in 30% of the cases.  Largely, vessels and, more specifically, the companies that own and operate them, are recognized as innocent third parties that unknowingly participate in illegal activities due to the nature of their business.  According to an ocean executive interviewed by FreightWaves, “Shipping lines don’t open the container.  We carry based on what is declared for the container.  In the event of a drug bust, the master and the crew are questioned.  They’ll check the seals to see if they are damaged.  Then there’s a criminal investigation.  If it’s one container, they’ll just unload the container and release the ship.  All the ship does is accept a box and make sure that the stowage and stability is right.”  There’s truth to that statement, but it overlooks other important factors.

Criminals adapt.  As enforcement agencies improve their capabilities via technology and training and information becomes more readily available, criminals constantly find ways to evade being caught and getting their goods seized.  Although containers have been used as the primary medium for concealing large amounts of illegal goods, it shouldn’t be assumed that illegal goods were loaded when the container was being initially packed and sealed.  For example, in the case of US Customs’ historic cocaine seizure this past June, court documents outline that in the middle of the night “…upon leaving Peru on this current voyage, he [Ivan Durasevic] got a call from the chief officer to come down to the deck, at which he saw nets on the port side stern by the ship’s crane. Durasevic and approximately four other individuals, some of whom were wearing ski masks, assisted in the pushing of the nets towards Hold Seven or Eight of the vessel. The nets contained blue or black bags with handles. Two or three crew members assisted in loading the cocaine into containers. The whole process took approximately 30 to 40 minutes.” Durasevic is one of the men prosecuted for loading the drugs onto the vessel. Rather than using a container-centric focus, the vessel’s routing and characteristics had an important role.

Additionally, the protocols and policies of owners and operators and local and international statuses can help determine vessels that are more likely to transport illegal goods.  For example, Hapaq-Lloyd, Evergreen and OOCL are helping to deter criminal activity by implementing large fines and indefinite liability for rogue shippers that un-declare or mis-declare goods.  Understanding the complexity of proactively enforcing that policy, those carriers are also strengthening their pre-boarding inspection and verification procedures.

Using Global Vigilance VSS, you can determine vessels that are involved in criminal activity and – leveraging that intelligence – proactively identify other high-risk vessels.

For more information, contact us about how we can help you track vessels.



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MSC Vessel

MSC Gayane Released from U.S. Custody

Global Vigilance VSS notified us on Saturday night at 9:19PM EDT that the MSC Gayane, a one year old, new panamax container ship with a capacity of 11,000 TEUs, departed the Port of Philadelphia.  It made mainstream news headlines over the last three weeks for being caught transporting 19.76 tons of cocaine (US$1.3 billion) inside of seven containers[1], which also contained wine, paperboard, vegetable extracts and dried nuts[2]. That was the largest cocaine seizure in the history of U.S. Customs and Customs and Border Protection (CBP)[3].

J.P. Morgan has received most of the public backlash as all major news outlets identified it as the company who owns the “drug ship”[4] in headline after headline. That generated attention but failed to accurately inform the public of the company directly responsible.

Due to the complex nature of shipping and costs to own, operate and insure a vessel, there are seven levels of direct ownership with seven distinct roles fulfilled by one company or multiple companies – related or unrelated. Concerning the MSC Gayane, Mediterranean Shipping Company (MSC) and its subsidiaries have those responsibilities. However, as the group beneficial owner and operator of it, MSC has direct control. J.P. Morgan, more specifically J.P. Morgan Asset Management, only has an indirect, financial stake in the MSC Gayane on behalf of its pension fund customers.

Copyright 2019 Global Vigilance.  All rights reserved.

On July 4th, 16 days after finding the record load, CBP seized the MSC Gayane at the direction of William M. McSwain, the U.S. Attorney for the Eastern District of Pennsylvania, and subjected it to possible forfeiture to the United States[5]. That decision seemed indefinite based on his comments, but McSwain released the ship nine days later after an agreement with MSC was reached[6]. Global Vigilance VSS immediately alerted us when the MSC Gayane departed the Port of Philadelphia en route to Rotterdam, Netherlands.

Using Global Vigilance VSS, you can monitor port movements and create alerts to notify you when vessels arrive, depart or declare they are en route. And as vessels have seven levels of direct ownership, you can also create alerts that notify you when a controlling entity meets the same criteria.  In addition to the MSC Gayane, we are tracking other seized ships worldwide.

For more information, contact us about how we can help you track vessels.



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References

  1. “Ship in Record Cocaine Bust Seized, Anchored in Delware Bay.” nbcpalmsprings.com. July 8, 2019. Retrieved July 15, 2019.
  2. “REVEALED: How JPMorgan’s stodgy asset management division came to own a ship that was seized in Philadelphia carrying 20 tons of COCAINE worth $1.3billion”. dailymail.co.uk. July 10, 2019. Retrieved July 15, 2019.
  3. “Cargo ship owned by JPMorgan Chase seized by US with 20 tons of cocaine”. edition.cnn.com. July 10, 2019. Retrieved July 15, 2019.
  4. “JPMorgan Might Lose a Drug Ship”. bloomberg.com. July 10, 2019. Retrieved July 15, 2019.
  5. “Commentary: Vessel forfeiture.” americanshipper.com. July 12, 2019. Retrieved July 15, 2019.
  6. McSwain, William. (USAttyMcSwain). “Progress on our MSC Gayane ship seizure: Today, my office secured $10 million in cash and a $40 million surety bond from the owner and operator of the vessel in exchange for its temporary release pending a final resolution in this case. #MSCGayane”. 13 July 2019, 1:26PM. Twitter Post.

Vietnam – A Trade War Winner?

“Understanding the potential impact of the U.S. tariffs on China, we were asked whether there has been any impact on Vietnam. Using Global Vigilance VSS, we were able to quickly analyze data across Vietnamese ports to determine if there was any material growth.”

Vietnam, home to 97 million people[1], is the 47th largest economy in the world[2].  Occupying the eastern part of Mainland Southeast Asia with its coastline along the South China Sea, Vietnam is located proximate to China by both sea and land routes.  As GDP growth has been above 6% on average year-over-year since recovering from the global financial crisis that swept across Asia almost a decade ago and is expected to accelerate through the 2020s according to Standard Chartered[3], over US$2 billion (VND 50 trillion) has been invested into the latest major port infrastructure changes to improve operations by increasing accessibility and capacity.

Ports of Vietnam. Global Vigilance.

Its largest three ports, Saigon, Danang and Haiphong – representing the southern, central and northern regions, respectively – are helping fuel the continued growth of Vietnam’s economy.  Saigon Port, comprised of a network of small urban ports along the Saigon River, is being relocated to Hiep Phuoc Port, farther outside of Ho Chi Minh City.  Danang Port completed a two year upgrade in mid-2018 that increased its cargo capacity by 5 million tons per year[4].    Haiphong Port is under development to expand the cargo capacity of its Lach Huyen International Gateway by 24 million tons[5].  Completion of Saigon Port is expected to happen in 2020[6] followed by Haiphong Port in 2022[7].

Starting in February 2018, the U.S. implemented a near global tariff for all countries except Canada on all solar panel and washing machine imports, which was followed by the implementation of another near global tariff on all steel and aluminum imports one month later.  China, in reaction to the U.S.’s aggressive, new tariff regime, imposed tariffs directly on U.S. goods, such as agriculture, automobiles and steel and aluminum products.  These events led to souring relations between the U.S. and China since then and, as a measure to negate higher tariffs imposed by China on U.S. goods, restricted market access and other grievances, the U.S. imposed additional tariffs on over $200 billion worth of Chinese goods and raised tariff rates from 10% to 25%.

A tariff is a tax imposed by a government on goods imported from other countries that serves to increase the price and make imports less desirable, or at least less competitive, versus domestic goods[8] or goods sourced from lower-cost countries.  The tariffs imposed by the U.S. on Chinese goods increase their price making them less desirable to U.S. consumers as compared to similar goods.  As many listed under the latest tariffs are also manufactured either domestically or by companies in other countries, Chinese businesses are affected by adverse demand, especially those selling products more sensitive to price elasticity.  U.S. and foreign businesses fighting to keep price-conscious U.S. consumers are minimizing their exposure to China by buying similar goods from other countries or moving their operations elsewhere.

Understanding the potential impact of the U.S. tariffs on China, we were asked whether there has been any impact on Vietnam.  Using Global Vigilance VSS, we were able to quickly analyze data across Vietnamese ports to determine if there was any material growth.  Though our analysis included many factors, let’s just focus on container ship traffic and total TEU capacity.  TEU, or twenty-foot equivalent unit, is a standard measure for a container for transporting goods that’s used to calculate how many containers a ship can carry[9].

We queried several years of data and noticed that container ship traffic and total TEU capacity largely remained constant with expected year-to-year increases through February 2019 despite the completion of Lach Huyen International Gateway Phase 1 in May 2018, which increased its total TEU capacity by 300,000, Danang port expansion in July 2018, which added two new piers doubling TEU capacity and partial relocation of the Saigon Port network from 2016 to 2018.  However, starting in March 2019, Vietnam had significant gains in container ship traffic and total TEU capacity.  This trend has continued to date.

VSS - Vietnam TEU Capacity and Container Traffic 2019

Through the first three months of 2019, the average TEU capacity of container ships entering Vietnamese ports was 505,000 TEUs.  Over the next three months, the average capacity increased by 16% to 586,000 TEUs.  In support, through the first three months of 2019, 419 container ships entered Vietnamese ports and, over the next three months, that number increased by 14% to 479.  Compared to the same period in 2018, there was a 10% increase in average TEU capacity and 15% increase in container ship traffic.

We are seeing that container ship traffic and TEU capacity in Vietnam significantly increased along with the heightening trade tensions between the U.S. and China despite port upgrades from 2016 to 2018.  Vietnam realized expected gains year-to-year prior to 2019; however, over the first six months of this year, material gains are seen.  One can conclude there is a positive correlation between trade relations in the world’s top two largest economies and Vietnam based on this data alone, but we always encourage our customers to do more analysis. The Global Vigilance VSS supports their decisions and helps them proactively adapt to the changing world and new threats.

The Global Vigilance VSS helps our customers identify trends in real-time as it quickly analyzes millions of data points to not only measure vessel risk, but also find anomalies.  Contact us for more information on how we can help you.


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References

  1. “Economy of Vietnam”. Wikipedia.com. July 1, 2019. Retrieved July 8, 2019.
  2. “The World Bank in Vietnam – Overview”. Worldbank.org. April 24, 2019. Retrieved July 8, 2019.
  3. Yen, Hai. (May 13, 2019). “Vietnam’s GDP per capita to increase 4-fold by 2030”. Hanoitimes.vn. Retrieved July 8, 2019.
  4. “Da Nang completes second-stage upgrading of Tien Sa port”. Nhandan.org. July 28, 2018. Retrieved July 8, 2019.
  5. “Lach Huyen International Gateway Port, Haiphong”. Ship-technology.com. Retrieved July 8, 2019.
  6. “Ports along Sai Gon River to be relocated”. Vietnamnet.vn. June 28, 2018. Retrieved July 8, 2019.
  7. “Made in Vietnam”. CNBC. June 25, 2019.
  8. “Tariff”. Shopify.com. Retrieved July 8, 2019.
  9. “TEU”. Dictionary.cambridge.org. Retrieved July 8, 2019.