Efforts to clear a backlog of hundreds of vessels in the Suez Canal are finally underway after a stranded container ship blocked the route for nearly a week, but experts warn the secondary effects on supply chains and shipping costs could last months.
Ever Given, one of the world’s largest container ships, became wedged across the southern part of the canal on March 23, bringing one the world’s busiest trade routes to a standstill.
The initial impact was alarming. With around 13% of world trade passing through the Suez Canal, German insurance and financial services company Allianz estimated that a week of closure would cost global trade between US$6bn and US$10bn.
Many vessels responded by travelling around southern Africa instead, typically adding 10 to 14 days to their journey, but according to S&P Global data there was an estimated backlog of 370 ships waiting for the canal to be cleared.
Ever Given was refloated on March 29, following a mammoth dredging operation, the deployment of two powerful seagoing tugboats, a 400m lever to free the front of the ship, and a timely high tide.
Though as of press time it remains anchored in the Great Bitter Lake – which lies between narrow sections of the canal to the north and south – vessel tracking data shows high volumes of traffic have since resumed.
Chris Rogers, a trade analyst at S&P-owned supply chain intelligence company Panjiva, estimates that if 75 vessels can pass through the canal each day – currently the all-time record – it would take “at least 15 days of crossings above the ‘normal’ 50-60 vessels per day run rate to clear the current backlog”.
However, industry heavyweights are warning that secondary effects are likely to continue long after canal traffic is back to normal. Shipping and logistics giant Maersk issued a customer advisory on March 29 cautioning that “disruptions and backlogs in global shipping that could take weeks, possibly months, to unravel”.
Maersk’s digital logistics platform Twill adds in a statement that the blockage “will have ripple effects on global supply chains for weeks to come”.
For Allianz, the “second-round effects will be much more important” than the initial incident – and top of the list of worries is disruption to supply chains.
Supply chain disruption
“The problem is that the Suez Canal blockage is the straw that breaks global trade’s back,” Allianz says in a research paper published on March 26.
Combining the Suez incident with other supply chain disruptions since the start of 2021, including container availability issues and semiconductor shortages, it estimates a US$230bn direct impact on global trade growth.
Suppliers’ delivery times “are now longer in Europe than during the peak of the Covid-19 pandemic in 2020”, it says, while rising input prices for European companies could negatively impact already-squeezed margins.
French credit insurer Coface says companies using just-in-time (JIT) supply chains for inventory management purposes are “very sensitive to such supply shocks”.
Delays in the arrival of parts – it gives the example of Europe’s automotive sector, which relies on inputs from Asia delivered via the Suez Canal – mean inventory at many producers will be alarmingly low.
“Therefore, looking forward, following the Suez Canal blockage episode, some companies using JIT might embark on a transition away from this practice, to be more resilient if a similar shock were to happen again,” it says.
Other goods being imported to Europe from Asia that are understood to be experiencing disruption include coal and steel, as well as rice and grain, says Nordic Marine Insurance’s marketing director Claudio Blancardi.
Rebecca Harding, an economist and chief executive of trade data platform Coriolis Technologies, says the incident should be another warning to global trade around spreading the risk of inventory shortages.
“At the beginning of the pandemic, the challenge was over-reliance on one supplier,” she says. “Now we are seeing an equal challenge of over-reliance on a few trade routes.
“The last year has raised many questions for trade, but the one around the sustainability of the current supply chain models is the biggest and remains unanswered.”
Panjiva cites the example of another vessel, Maersk’s Essen, which lost around 750 containers during a storm in the Pacific Ocean in January this year. It says that single incident caused “at least a month of delays” to manufacturers and retailers such as Adidas and Puma.
There are also potential implications around canal transit fees, according to research undertaken by Simon Ring, global head of regulatory technologies at maritime intelligence company Pole Star, and Jeff Handler, vice-president for business innovation at TradeIX, the fintech behind the Marco Polo Network, a trade and working capital finance blockchain initiative.
Ring and Handler tell GTR that the costs to Suez Canal authorities are expected to be around US$15mn per day, “demonstrating the scale of the transit fees that vessel owners, operators and charterers pay to transit the canal”.
“Up until now, these fees would need to be paid by cash on arrival by the vessels’ owners or operators, which causes several liquidity, efficiency, and time issues even when things go smoothly,” they say. “One can only imagine that these issues have been exacerbated during the blockage.”
Pole Star and Marco Polo are currently working on a canal transit fee financing product that aims to avoid that pre-funding model and free up working capital. Ring and Handler say the payment commitment programme will be launched “very shortly”.
Other cost pressures include upward pressure on freight rates, Coface warns, because “there are temporarily fewer ships available, as some of them were stuck in the Suez Canal”.
“This comes in a context where freight rates are already high, due to a lack of empty containers in China,” it says.
Coriolis’ Harding says there has already been “a further upward drift in prices and the result will be inflationary pressure through the global trade system”.
Insurance claims are also expected to stack up, if vessel and cargo owners file compensation claims for delayed shipments.
Ever Given’s owner, Japan’s Shoei Kisen Kaisha Ltd, has a total of US$3.1.bn liability insurance in place, the WSJ has reported, which would cover liability to the cargo owners.