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The World Trade Was Interrupted At The Suez Canal


Published 31 Mar 2021

The World Trade Was Interrupted At The Suez Canal

The World Trade Was Interrupted At The Suez Canal

 

Ever Given, the 224,000-tonne and 400m (440 yard) long Ultra-Large Container Vessel (ULCV), carrying 20.000 containers bound for Rotterdam from China, ran aground at the southern end of the Suez Canal on Tuesday morning, March 23, after losing the ability to steer amid high winds and a dust storm. It blocked vessels passing through one of the world’s most important waterways and threated to disrupt global shipments for days.

“A significant incident like this is usually the result of many reasons: The weather was one reason, but maybe there was a technical error, or a human error,” said Lt. Gen. Osama Rabie, chief of Egypt’s Suez Canal Authority.

It is explained as the world’s biggest ever container ship disaster without a ship going bang. The ship owner (Japanese firm Shoei Kisen KK) and its insurers may face claims totalling millions of dollars for losses to perishable goods or missed delivery deadlines, even if the ship is refloated quickly.

 

 

 

Have Vessels Gotten Too Large?

Container ships have nearly doubled in size in the past decade as global trade expands, making the job of moving them much harder when they get stuck. In addition, this causes to containers being jettisoned overboard, delayed transits due to terminal congestion and long line of vessels at many ports waiting for a berth.

 

Why Is The Suez Canal So Important For Trade?

The 120 miles (190km) long, 24 meters (79ft) deep and 205 meters wide canal (built in 1869) is one of the most important and busiest waterways in the world. It connects the Indian Ocean with the Red Sea by way of the Medirerranean and is the shortest route between Asia and Europe. An alternative route, around the Cape of Good Hope on the southern tip of Africa, which adds about 3,500 miles to the journey takes two weeks longer.

On average, nearly 50 vessels per day pass along the canal, although at times the number can be much higher - accounting for some 12% of world trade. So it is a cornerstone of international trade and also a key route for oil tankers going to and from the Middle East. Along with oil, the sea traffic is largely consumer products such as clothing, furniture, manufacturing components and car parts. Millions of tons of manufactured goods make their way from China and South Asia to Europe via the canal.

Container ships such as the Ever Given are the most common type of ship using the Suez Canal.

 

 

Supply Chain Issues

Due to Ever Given has run aground at a busy time of year there would be some major real-world effects on the supply chain. Trade is picking up after the Chinese New Year which sees factories close down in the world’s manufacturing powerhouse. Businesses are seeking to restock in the hope that coronavirus restrictions will ease in the coming months. There is already a global shortage of shipping container space and Covid-19 safety procedures have been causing delays at ports.

The blockage is creating long tailbacks in the waterway, with more than 400 vessels currently waiting in the area to pass. The delayed vessels are not only container ships, but oil and gas tankers and bulk carriers transporting grain supplies. Virtually ever container ship making the jurney from factories in Asia to consumer markets in Europe passes throught the canal. A long delay would create serious problems for shippers, delaying consignments of goods and fuel and may cause to production stop at conveyer belts in Europe shortly.


How Will This Impact Global Trade?

Experts began to tot up the economic and environmental ramifications of a protracted obstruction. Around 10 million barrels of oil and petrol are reportedly backed up near the entrances of the canal. It will cause bunching of ships at various ports in Europe. Anything that’s behind it will come rushing through. Discharging vessels is already slow because of Covid procedures, as is pick-up of containers. The shutdown of the canal is affecting as much as 15 percent of the world’s container shipping capacity, leading to delays at ports around the globe.

Results will be felt around the world and costing the global economy tens of billions of dollars.

 

How Much Does Each Day Of Delay Cost?

Shipping analysts estimated the traffic jam was holding up nearly $10 billion in trade every day. It’s difficult to put a precise figure on it because of the vast range of goods transported by sea. On a shipment of waste paper, for example, delays are inconsequential; for high-end electronics timed to arrive for a launch, they’re crippling. The stranded Ever Given mega-container ship in the Suez Canal is holding up an estimated $9.6bn (£7bn) of goods each day, according to shipping data. This works out at $400m an hour in trade along the waterway which is a vital passageway between east and west.

 

Suez Canal Gridlock Could Raise Oil Prices And Shipping Costs

Due to the closure of the Suez canal, oil prices in international markets increased by 4 percent. But reports suggest traffic could be flowing again relatively quickly, in which case the impact will be limited, although there has been a rise in the oil price. Analysts told that about 3 million barrels of oil per day passed through the Suez Canal, but a few days of slowdown would not have a critical impact on the market. Though prices jumped after shipping on the canal was halted, oil prices still remain below their nearly two-year highs of about $70 per barrel reached earlier this month.

The course of the 400m-long (1,300ft) Ever Given has been corrected by 80% on Monday, March 29 and set free on Tuesday, March 30. Oil prices fell as word spread that the giant cargo ship blocking traffic in the Suez Canal for nearly a week set finally free and once again underway, raising hopes that hundreds of vessels, many carrying oil and petroleum products, could soon proceed through the critical waterway.

Even with the refloating of the Ever Given meaning the Suez Canal can soon reopen for business, shipping analysts caution that it will take time — perhaps days — for the hundreds of ships now waiting for passage to continue their journeys. This will certainly have an impact on global shipping costs.