Suez Canal Crisis Adds Pressure on Shipping Lines

Suez Canal Crisis Adds Pressure on Shipping Lines

On 23rd March, a massive container ship was blown sideways by dust storms completely blocking the canal and backing up dozens of ships and causing a watery traffic jam at a critical global choke point. 

Ever Given (ship) had been seized due to its failure to pay US$ 900 million in compensation, Egyptian state media reported. The figure was based on the losses incurred by the grounded vessel as well as the flotation and maintenance costs. About 12% of world trade passes through the Suez Canal in Egypt. It is one of the most important shipping routes with over 400 vessels waiting in line to pass to reach their respective destination. It added further stress to the global trade already struggling from pandemic impacts like spiked consumer demand, decreased port capacity and a worker shortage.

It’s a key waterway that connects Asian factories to Europe through the Mediterranean and from there to ports and markets on the east coast, says argus media, a market research firm. Backed up on either side are cargo ships that contain clothes, shoes, exercise equipment electronics, car parts, carpets and many more items along with 13 million barrels of crude oil. This adds further supply pressure on gas prices already rising as production lags and lockdown restrictions ease. The dredging teams worked through the night to try to clear the canal bed around the 20,000-ton ship. One mistake would have cost another fortune as the bow was basically in Asia, the stern’s in Africa and the middle was in the middle of the canal. 

The weight could not be taken off the ends and sagging stress on the vessel was not a viable alternative. It conceivably cracks the hull that causes an oil spill but worse catastrophically fractures the vessel in half which would close the canal for months if not years. On 29th March, the container ship stuck in the Suez canal for nearly a week was set free. The Egyptian authorities say the bow of the skyscraper-sized Ever Given was wrenched by tugboats from the canal sandy bank. It’s now back in its normal position in the middle of the waterway. 

What everyone is wondering is if it is just a gust of wind, we should see this happen more frequently. There’s often strong wind in the Suez canal and about 20,000 ships sail through the same route every year. It’s more likely that it was a consequence of multiple different factors.

Why did the world’s container ships grow so big?

For decades, shipping lines have been making bigger and bigger vessels, driven by expanding global demand for electronics, clothes, toys and other goods. Massive ships were made with a single agenda in mind i.e to save cost. Bigger vessels are generally cheaper to build and operate on a per-container basis. But the largest ships can come with their own set of problems, not only for the canals and ports that have to handle them but for the companies that build them. Despite the risks they pose, massive vessels will continue to dominate global shipping, according to Alphaliner, a shipping-data firm.

As ships have gotten bigger and bigger and crews have become smaller; was this blockage an accident waiting to happen? Technically, no. Even before, the container ships were made, giant ships and large tankers along with other types of vessels used to pass through the Suez canal.

While container ships have gotten larger over the last couple of decades, they cannot be seen as a contributing factor in itself.

The bigger vessels demonstrate certain weaknesses as they can only be called on fewer ports and navigate through fewer tight waterways. They are also harder to fill, cost more to insure and pose a greater threat to supply chains when things go astray, such as Ever Given’s blockage in the Suez Canal. Giant ships are also designed for a world in which trade is growing rapidly, which is far from guaranteed in these uncertain times. 

What’s the extent of damage from having it blocked for this long?

Unfortunately, we can’t quantify the exact damages just yet. As we know that a large volume of goods passes the Suez canal every day and a week’s delay has severely damaged the shipping industry. There are certainly millions worth of damages to the shipping companies that are still due to pay operating costs for ships that were waiting. As for the exact damages to the supply chains, it’s too early to tell.

What would have been a minor annoyance for a couple of days have turned into something that’s having ripple effects on all the container shipping flows. The alternative route is the long way around Africa. It takes a week to voyage around 5,000 kilometres and burns between 500 and 1000 tons of fuel per ship. The canal is also a huge moneymaker for Egypt. The Egyptian state receives a lot of the revenue from the Suez canal and a lot of that has been essentially lost in March. The exact amount of revenue lost will depend on the number of ships that have chosen to sail around Africa instead of using this canal. 

We always regarded supply chains as somewhat robust but the pandemic and the crisis in the Suez canal have taught us that there are some risks associated with just in time production. This debacle has highlighted one of the major weaknesses of our globalized economy. Will this change our opinion about the way the shipping industry currently operates itself? 

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