How the Suez canal blockage can seriously dent world trade

Figcaption How The Suez Canal Blockage Can Seriously Dent World Trade
Posted at: Author: Rain TV UK

World trade’s pre-eminent shortcut – the Suez Canal – is facing “massive” disruption which could cause cargo delays around the globe, shipping experts warned on Friday.

The narrow, 120-mile passage of water linking the Red Sea and the Mediterranean allows ships of colossal proportions to navigate a relatively direct route from Asia to Europe, rather than taking a 3,500-mile diversion around Africa.

However, on Tuesday, the MV Ever Given – a Japanese-owned megaship a quarter of a mile long that is operated by Taiwan’s Evergreen Marine – got stuck and blocked the route.

“The disruption is massive,” said Guy Platten, secretary general of the International Chamber of Shipping (ICS). “There are well over 200 ships waiting to use the canal and the number is growing and shipping companies are making that difficult decision whether to go around Africa.”

Tug boats and dredgers try to free the MV Ever Given. Photograph: Satellite image ©2021 Maxar Tech/AFP/Getty Images

About 12% of global trade passes through the Suez canal, carrying well over $1tn worth of goods a year. About 50 ships a day, carrying a total of $3bn to $9bn worth of cargo, will make the journey north or south between Suez port and Port Said.

The beached Ever Given alone is carrying up to 20,000 containers; and in the queue behind it sit more than 16 fuel tankers.

Container ships now form the bulk of the traffic in Suez, whose fees paid to the Suez Canal Authority amounted to $5.6bn in revenue for Egypt last year. A lengthy delay while the ship is salvaged will hit supply chains and the mounting costs could inflate everything from oil prices to basic goods, some suggest.

Platten said: “Cargo will be late; the impact will ripple out to the rest of the world. Demand for ships will rise.”

Shipping is resilient, he said, but he added: “You miss your slot at a port, you can’t offload your cargo – your grain, iron ore, any matter of goods or commodities … some are time critical and could perish and affect whole supply chains. And some carry vital medical equipment – there will be disruption in the midterm.”

A satellite image shows the Suez Canal blocked by the stranded container ship Ever Given. Photograph: ROSCOSMOS/Reuters

Platten played down fears that ultra-large container ships – some of which are already unable to navigate the other great passage, the Panama Canal – are apt to struggle, and that this was more than a freak event: “There are 18,000 transits every year … the last time it was blocked was 2013 and that was only for a few hours.”

According to shipping specialist Lloyd’s List Intelligence, 114 similar-size ships have made the same northbound journey up the canal to Europe already in 2021, without incident.

Capt Stephen Gudgeon, who has been at the helm for international container shipping lines and oil majors, experienced first-hand the difficulty of steering large ships through the canal, even with the local pilots to help navigate. “The effects of the wind in the canal have been identified as a potential risk for a long time, and the better shipping companies will send their captains on simulator courses to deal with these. You never know how the wind is going to gust when you’re going through,” he said.

Sign up to the daily Business Today email

“These ships are so huge, the margin for error and the time it takes to lose control is small – you may be reacting very quickly but it takes time to turn it around.”

The alternative passage round the Cape of Good Hope can mean an extra five to 12 days on journeys, with added security risks. “You’d have to take armed guards for the transit down the Red Sea to get you round the Horn of Africa and out of harm’s way,” said Gudgeon. “And you might have to bunker [take on fuel] and take on stores on the way.”

On the back of the global container crisis, where shortages fuelled soaring shipping prices, and the Covid-19 pandemic which has left many crew at sea for months unable to disembark, the Suez hiatus has at least once more made the world aware of the ships on which economies depend.

The costs now will run into many, many millions, Platten says, in salvage alone – with other shipping companies looking to mitigate their losses, and insurers facing huge payouts. “There are no real winners – lawyers possibly excepted.”

Ultimele News