Ship blocking Suez Canal is beginning to affect the global economy

A satellite image shows the stranded container ship Ever Given after it ran aground in the Suez Canal in Egypt on March 25, 2021.

CNES Airbus DS | Reuters

The Ever Given, one of the largest container ships in the world, is still in the Suez Canal and the economic effects of the blockade – now on day four – are starting to unfold.

White House press secretary Jen Psaki said Friday that the US is closely monitoring the situation. “We have offered US assistance to the Egyptian authorities to help reopen the canal … these talks are ongoing,” she said during a press conference before adding that there was “some potential impact on energy markets.”

Oil prices rose on Friday on speculation that the ship could take weeks to relocate. West Texas Intermediate Crude Oil Futures and Brent Crude Oil each gained more than 4%. The gains come after prices fell on Thursday despite the stalemate.

“In a different sense, traders decided that the blockade of the Suez Canal for oil flows and shipments was indeed becoming more important than previously thought,” said Paola Rodriguez-Masiu, vice president of oil markets at Rystad Energy.

A satellite image shows the Suez Canal, which was blocked by the stranded container ship Ever Given in Egypt on March 25, 2021. This picture is from the Twitter page of the general manager of Roscosmos Dmitry Rogozin. Photo from March 25, 2021.

Roscosmos | Reuters

Of the 39.2 million barrels of crude oil per day that were imported at sea in 2020, 1.74 million barrels per day went through the Suez Canal, according to the research company Kpler.

This corresponds to less than 5% of the total flows, but the more it extends, the greater the impact.

Bernhard Schulte Shipmanagement, the ship’s technical director, said another attempt on Friday to levitate the carrier again was unsuccessful.

A special suction excavator that can move 2,000 cubic meters of material an hour is now on site. “Provisions are also being made for high-capacity pumps to lower the water level in the ship’s forward cavity and in the bow thruster room,” the company said on Friday.

The stranded container ship Ever Given, one of the largest container ships in the world, can be seen after landing in Egypt’s Suez Canal on March 26, 2021.

Mohamed Abd El Ghany | Reuters

Bernhard Schulte added that two more tugs will arrive by Sunday to support the floatation operation.

Douglas Kent, executive vice president of strategy and alliances for the Association for Supply Chain Management, noted the impact will continue to be felt even after the ship is relocated. Ships arrive at ports and, for example, cause new traffic jams at the same time. Freight plans drawn up months in advance need to be shuffled with ships now sitting in the wrong place.

More importantly, there is a lack of transparency across the supply chain.

“The whole nudge of the multi-hierarchy of the supply base – we won’t know,” said Kent. “Companies have no insight into their supply chain.” While a company may know a product is on a stopped ship, the impact of delays down the line is not known.

A dredger tries to free the stranded container ship Ever Given, one of the largest container ships in the world, after it ran aground on March 25, 2021 in Egypt’s Suez Canal.

Suez Canal Authority | Reuters

The Suez Canal handles around 12% of world trade and is therefore an essential transit point. According to Lloyd’s List, each day the blockade disrupts more than $ 9 billion worth of goods, which is roughly $ 400 million an hour.

Some ship operators have already decided to reroute their ships, assuming that the Ever Given will not be displaced anytime soon. Sending ships around the Cape of Good Hope adds more than a week to sailing time while increasing costs.

“It’s an awful mess,” said Anthony Fullbrook, president of the OEC Group North American Region.

The disruption caused by the backlog in the Suez Canal is due to the fact that Covid-19 is already burdening global supply chains.

“There’s already a shortage of equipment, space, everything is working at maximum capacity … It’s already slowly melting together, and this is only going to make it worse,” he added.

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