Suez Canal is moving, but the supply chain impact could last months

A view shows the container ship Ever Given, one of the largest container ships in the world, after it was partially floated again, on March 29, 2021 in the Suez Canal in Egypt.

Suez Canal Authority | Reuters

Ever Given was released from the Suez Canal on Monday after cutting off traffic on the vital waterway for six days. However, experts say the disruptions in world trade will continue to have an impact.

“We may celebrate the success of the ship release and the Suez release, but the story doesn’t end there,” said Douglas Kent, executive vice president of strategy and alliances for the Association for Supply Chain Management.

“As a result, ports and other delivery mechanisms will definitely continue to be lagged, and then of course the chaos that disturbs afterwards,” he added.

The ship, one of the largest in the world, was jammed horizontally in the canal last Tuesday. Since then, the crews have worked day and night to free the ship, which, at over 300 meters, is almost as long as the Empire State Building.

Ultimately, the ship was removed around 9:00 a.m.CET on Monday after more than 10 tugs arrived on site, along with specialized dredging equipment and skilled salvage teams who all worked together to free the 220,000-ton ship.

But while traffic has resumed on the main waterway, the effects will continue to be felt after days of halted movement.

Images of Ever Given in the Suez Canal captured by the company’s WorldView 3 satellite on Saturday, March 27, 2021.

Maxar Technologies

Around 12% of world trade flows through the Suez Canal on massive ships like the Ever Given, which can hold 20,000 containers.

Lloyd’s List estimates that more than $ 9 billion worth of goods pass the 120-mile waterway every day, which equates to roughly $ 400 million an hour.

“A week of this size break will continue to have cascading effects … it has to take at least 60 days for things to clear up and seem a bit back to normal,” said Stephen Flynn, professor of political science at Northeastern University. “This level of interference was occurring every 24 hours,” he added.

The consequences include traffic jams in ports and ships that are not in the right place for their next planned trip. Above all, it is further tightening the supply chains, which are already affected by a shortage of containers in the midst of the Covid-19 buying boom.

Flynn, who is also the founding director of the Global Resilience Institute, noted that this is one of the challenges of a just-in-time system. Assembly lines are idle because, for example, parts are not displayed at the expected time.

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

“It’s never been so stressed out and it’s going to take a very long time and they’re just starting to sort it out … you’ve essentially created this traffic jam that doesn’t allow you to just do this.” Reset and reboot – you have to re-stack and reset the system and that takes a lot of choreography, “added Flynn.

Ships have grown larger and larger in search of efficiency and inexpensive goods. Not all ports can handle ships the size of Ever Given, creating concentrated systems.

Ships of this size could sail from China to Rotterdam – the route the Ever Given was on – where their containers could then be loaded onto smaller ships heading to the rest of Europe or other destinations including the United States.

In other words, smaller ports can not only settle the planning conflicts caused by the congestion on the Suez Canal.

According to the Suez Canal Authority, almost 19,000 ships passed the canal in 2020, an average of 51.5 per day.

By Monday morning, a total of more than 350 ships had been secured at both ends of the Suez Canal as the Ever Given interrupted access in both directions. The freight forwarder GAC said traffic is expected to be back to normal in the next three to four days.

The ships were sailing south from Great Bitter Lake into the Suez Gulf on Monday afternoon when the Suez Canal Authority tried to get traffic going again.

“No matter how long it takes, the damage has been done. Shippers are warning of months of supply chain disruptions and even tighter capacities as Asian imports to Europe and North America increase,” said Mark Szakonyi, executive editor of IHS ‘Journal of Commerce Mark It .

Some shipping companies, including Hapag-Lloyd, decided to divert ships around the Cape of Good Hope. This extends the sailing time by at least an additional week and at the same time leads to higher fuel costs.

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

Looking ahead, experts disagree on the extent to which this will ultimately affect US consumers.

Jeffrey Bergstrand, a professor of finance at the University of Notre Dame’s Mendoza College of Business, expects the impact to be minimal.

“The incident of the now vacant tanker Ever Given, which blocked the Suez Canal for about a week, will have only a minor and temporary impact on the prices of imported goods,” he said. “With most of the imports blocked last week going to Europe, US consumers are likely to have little impact on US import prices, except to the extent that intermediates of US end-products are manufactured in Europe. “

Flynn, on the other hand, said prices in the US will “almost certainly” rise as the world’s interconnected supply chain remains tight.

“This conveyor belt of the maritime transport system is what moves [products] all around, and we largely took it for granted until it suddenly stopped. … There will be many of these second and third order effects. “

Comments are closed.