The impact of the Suez Canal blockage on global trade: The ‘Black Swan’ incident

The MSC Rifaya arrives at the port, in Rotterdam, the Netherlands, 07 April 2021. The container ship is the first ship from the Suez Canal to arrive in Rotterdam since the Canal was blocked by the Ever Given for days, resulting in a hold up for hundreds of ships. EPA, ROBIN UTRECHT




By ROXANI KARANTZAKI

On March 23 the Ever Given a 224,000-ton vessel wedged across the southern end of the Suez Canal due to heavy winds and a sandstorm that resulted in low visibility rendering its navigation difficult. The incident that took place in one of the most significant sea routes in the world may ignite repercussions of paramount importance on the world trade.

According to shipping experts, the efforts to free the vessel may expand from a few days to weeks, an unpredictable element that puts the world economy in a state of limbo. In other words, vessels such as container ships and tankers that carry oil and gas cannot cross the Suez Canal in either direction for quite a while.[1] The list of backlogged ships in the Suez Canal has already grown to over 200, whilst 30 of these are oil tankers.[2] In addition, the Suez Canal Authority underlines that there are 321 vessels waiting to enter or continue their transit through the canal.[3]

Almost 90% of the world trade is conducted via sea routes. In particular, the Suez Canal is at the crossroads of the Mediterranean and the Red Sea and contributes to the movement of goods worldwide with an estimated 13% of the world trade pass through it. The Suez Canal Authority has been working on the expansion of the strait since 2014 aiming at almost doubling the current number of vessels crossing the strait by 2023. However, this unfortunate event bears a lot of consequences. In particular, some reports state that due to the blockage in the Suez Canal, ten crude tankers that carry 13 million barrels of oil cannot cross this route and they will have to reroute adding 15 days to their voyage.[4]

Another factor that should be taken into consideration is that experts estimate that the cost of money lost amounts to $400 million an hour, in a point where the daily westbound traffic is almost $5.1 billion and the eastbound at almost $4.5 billion. Thus, the cliché time is money gains greater dimensions. Especially, since the exports of liquefied natural gas, crude oil and refined oil range between 5% up to 10% of global shipments,[5] one can only imagine of the impact this incident shall have upon the energy market and the price of oil. The Suez Canal has a vital role for the transfer of fuel from the Gulf States to Europe and from Russia to East Asia.[6] In fact, oil prices increased because of the possibility that this problem will not be resolved in the near future.[7]

In addition, the United States will not suffer as great an impact as other countries since the main bulk of the products it receives from Asia mostly come from shipments that end up to the West Coast. However, products that come from Europe may be delayed.[8] Furthermore, the Suez Canal was considered an important alternate route for global importers because they wanted to avoid the congestion noticed in the West Coast ports in the USA that delayed some deliveries from Asia. The pandemic has increased the demand of products and container vessels used to clog ports and the process of delivery was already delayed. With the current situation, the global trade seems to be in a predicament since not only will the delivery of goods take place at a slower pace but the factories that produce them will also cause problems on the Chinese exports that heavily rely on containers.[9]

In fact, those businesses which are greatly dependent on the Suez Canal for their trade are already engaged in finding contingency plans to eliminate a potential heavy loss in case the ship blockage is prolonged. Freight costs are expected to rise and shortages of shipping containers may exacerbate. Some Chinese businessmen consider sending their products to Germany and Spain through railway while others cling to airfreight. Either of these alternatives may involve an increase in the prices of the products.[10] Countries which have automotive industries such as Germany may bear the burden of the Suez accident since the shipment of auto parts loaded on vessels crossing this particular choke point may delay.[11]

The coffee market in Europe may be affected too since the bean used for instant coffee is imported from Southeast Asia. Countries such as South Korea that produce electronics could also be influenced by a prolonged blockage. Even companies that do not use the Suez Canal as a trade route may be affected since freight costs have increased everywhere. The blockage may have a grave impact on Qatar due to the liquefied natural gas it sells, so it may have to choose the route round the Cape of Good Hope to Europe, bearing the burden of a time and cost increase.[12]

All things considered, the Ever Given was stuck in the waters of the Suez Canal but it definitely stirred the waters of global trade. This ‘Black Swan’ incident as David Stanton called it because of “a low probability, high impact disruption to supply chains[13] was rather unpredictable. Countries that rely on this particular waterway for their imports or exports will have to search for alternatives should this situation continue.

Nevertheless, this does not imply that these alternatives may be cheaper for the producers or the consumers: it will just offer them a way out. Producers may find it hard to distribute their goods, the freight prices will increase and a new race against time shall be established. Oil prices shall increase and consumers may pay more for the fuel of their vehicles. In case this situation is prolonged more markets may be affected adding up to economic repercussions brought about by the pandemic and finally create a shockwave to global trade. In all respects, the blockage in Suez Canal is indicative of the problems that may arise due to the interdependence of the state economies, a rather hazardous ramification of globalization.

[1] M. Salem, et al., “Dislodging the huge ship blocking the Suez Canal could take ‘days to weeks,’ as the traffic jam builds”, March 26, 2021, online at: https://edition.cnn.com/2021/03/25/middleeast/suez-canal-ship-blockage-intl-hnk/index.html (accessed 27/03/21)

[2] T. Ghosh & D. Lao, ‘”Freighter blocking Suez Canal could have ‘critical impact’ on global trade: experts”, March 26, 2021, online at: https://globalnews.ca/news/7722135/suez-canal-blockage-trade-impact/ (accessed 27/03/2021).

[3] ABC Net, ‘Ever Given ship stuck in Suez Canal has moved, but it’s still unclear when it will be freed’, March 27, 2021, online at: https://www.abc.net.au/news/2021-03-28/ever-given-ship-suez-canal-moved-still-unclear-when-free/100033766, (accessed 28/03/2021).

[4] R. Hopcraft, K. Jones and K. Tam, ‘The stuck ship in the Suez Canal is an important lesson for global trade’, March 25, 2021, online at: https://www.weforum.org/agenda/2021/03/suez-canal-ship-global-trade-shipping-economics-international-globalization (accessed 27/03/2021).

[5] L.A. LaRocco, ‘Suez Canal blockage is delaying an estimated $400 million an hour in goods’, March 25, 2021, online at: https://www.cnbc.com/2021/03/25/suez-canal-blockage-is-delaying-an-estimated-400-million-an-hour-in-goods.html, (accessed 27/03/2021).

[6] P. Kelso, ‘Suez Canal blocked: What the mishap in one of the busiest shipping lanes means for the world’, March 26, online at: https://news.sky.com/story/why-the-cost-of-suez-canal-mishap-is-being-calculated-around-the-world-12255715, (accessed 27/03/2021).

[7] P. Stevens, ‘Another attempt to clear ship blocking Suez Canal fails as economic impact mounts’, March 26, 2021, online at:https://www.cnbc.com/2021/03/26/ship-blocking-suez-canal-is-beginning-to-affect-the-global-economy.html, (accessed 27/03/2021).

[8] D. Koenig and C. Rugaber, “Suez Canal: How blockage of ‘most pivotal node in the trading network’ impacts consumers”, online at: https://eu.usatoday.com/story/money/2021/03/26/suez-canal-blockage-how-impact-consumers/7010047002/, (accessed 27/03/2021).

[9] Supranote 5.

[10] P. Wen, J. Yang and S.Y. Xie, ‘Suez Canal Blockage Sends Asian, European Exporters Scrambling’, March 26, 2021, online at: https://www.wsj.com/articles/suez-canal-blockage-sends-asian-exporters-scrambling-11616771912, (accessed 27/03/2021).

[11] Supranote 8.

[12] Supranote 10.

[13] C. Gubash and A. Suliman, ‘Suez Canal: Ever Given owners hope to refloat giant ship on Saturday’, March 27, 2021, online at: https://www.nbcnews.com/news/world/suez-canal-ever-given-owners-hope-refloat-giant-ship-saturday-n1262246, (accessed 27/03/2021).

The new page in Greek-Libyan relations cannot be written on the old ones, Peloni says

Εγγραφή στο δωρεάν newsletter του HellasJournal

* indicates required

Latest of HellasJournal


%d bloggers like this: