Blocking International Trade: The Suez Canal Incident
On March 23, a 1,300 ft long container ship, named Ever Given, blocked traffic at Egypt’s Suez Canal entrance, leaving over 200 ships stranded at either end of the canal. After six frantic days, it was finally freed on March 29. While businesses hope the incident is an exception, corporate boardrooms across the world have re-evaluated their reliance on overburdened supply chain methods.
As a man-made waterway, the canal is one of the world’s most frequently used shipping lanes, carrying over 12 percent of world trade by volume. This has mounted pressure on global trade during a period when it is already experiencing significant strain due to the economic effects of the COVID-19 pandemic, and illuminated a fundamental flaw in the way corporations depend on supply chains.
Due to high tides and winds, Ever Given became wedged on the east bank and lodged diagonally. The salvaging company in charge of rescuing the ship described it as a “beached whale” as the Golden-class container ship represented an enormous weight on the sand. Even though the vessel is now free and trade has resumed, there has been a substantial backlog of vessels waiting to pass through the canal. The level of disruption cascaded over a period of six days as more vessels joined the line of transit.
In addition, the repercussions on shipments, oil and commodity prices, and availability of goods have spiked. Those in Europe were informed that they may face a shortage in instant coffee as the ingredients could not be shipped over. There was also congestion at some ports and further exacerbation of supply chains, which were already reeling from container shortages as a result of the year-long trend of increasing shipping costs. Moving forward, liabilities for missed deliveries, lost sales, manufacturing down time, expired products and multiple insurance claims are further at stake.
One million barrels of oil, eight percent of liquified natural gas and a total of 12 percent of global trade pass through the Suez Canal each day. This amounts to a loss of nearly USD$9.6bn of goods a day as a result of the most recent blockage. This continues to have a profound effect on the global trade market, as the canal is a vital trade route between the East and West. Another area of trade loss is the re-routing of some ships that have been requested to travel via the Cape of Good Hope in South Africa, which can cause a delay of up to eight days.
The losses may continue to rise in the coming weeks as global trade may cost somewhere between USD$6bn and USD$10bn. This not only applies to the Ever Given vessel, but to all of those ships delayed as a result. The incoming debacle over who absorbs these costs will be a lengthy affair of multi-party negotiation among shippers, consignees, shipping lines, freight forwarders and insurance companies. Sea Intelligence, a maritime data and analysis firm, confirmed that “all global retail trade moves in containers, or 90 percent of it. Name any brand name and they will be stuck on one of those vessels”. The blockage highlights the vulnerability of global trade and demonstrates the risks of the increased distance between production and consumption of goods.
This is not the first time the canal has been closed, having been blocked over five times since its opening in 1869. Previous blockages were mostly intentional due to increased political tension between countries at the time. While today’s ships are built much larger in size for efficiency, Ever Given could not withstand the bad weather despite its size.
The global supply chain landscape has been changing and adapting, reshaped by new emerging markets and trade tariffs, impacted by automation and e-commerce, and most recently, COVID-19 disruptions. Global supply chains will continue to become more varied, with regional supply chains interlinked globally as well. The Suez Canal incident is a timely reminder of the need for supply chain resilience in global commercial long-term planning, encouraging supply chain diversification into the future.
Erica Bell is a recent Bachelor of International Studies (Honours) graduate from the University of Wollongong. Her areas of interest include international business, disruptive technologies and innovation.