Modern-day Suez crisis disrupts world trade

The knock-on effects on global trade from last week's blocking of the Suez Canal are likely to be felt for weeks, or even months, ahead.
The knock-on effects on global trade from last week's blocking of the Suez Canal are likely to be felt for weeks, or even months, ahead.

The Suez Canal is a crucial artery in world trade.

But its operation suffered a major setback last Tuesday when one of the world's biggest container ships ran aground and blocked transit in both directions.

The Ever Given was passing through the Suez Canal en route from the Chinese port of Yantian to Rotterdam - the largest seaport in Europe - when it veered off course in a single lane stretch of the canal, about six kilometres north of the Red Sea entrance.

The ship was occupying fifth position in a northbound convoy of 20 vessels when it was reportedly hit by a strong wind gust and dust storm near the village of Manshiyet, causing it to deviate from the intended route.

But the Suez Canal Authority has since suggested that technical or human error may be to blame.

When the ship came to a halt, diagonally blocking the canal, its bow was wedged firmly into one bank and the stern was resting against the other.

At 399.94 metres, the Ever Given is one of the longest container ships currently in service and is operated by Taiwan-based Evergreen Marine Corporation.

Its hull has a beam of 58.8m, a depth of 32.9m and a fully laden draft of 14.5m.

The vessel's deadweight is just below 200,000 tonnes, and it has a container capacity of 20,124 twenty-foot equivalent units (TEU).

A combination of dredging the sand and mud from around the ship's bulbous bow and pulling with 14 tugboats to re-float the stricken carrier had limited success over the weekend.

But, following more dredging and favourable tidal conditions, the Suez Canal Authority announced that salvage crews had been successful in partially freeing the vessel just after 5:30am local time on Monday this week.

The Ever Given was completely re-floated at 3:05pm local time on Monday, and traffic resumed in both directions shortly after.

Egyptian officials said the backlog of vessels waiting to transit the Suez Canal should be cleared in about three days.

But experts believe the knock-on effects on global trade will be felt for weeks, or even months.

More than 425 vessels were stalled at either entrance to the canal, including at least 60 dry bulk vessels carrying commodities such as grain, coal and iron ore.

The list also includes container ships, oil tankers, LPG and LNG tankers, livestock carriers, general cargo ships, chemical tankers and car carriers.

The blockage is estimated to be delaying up to US$9.6 billion worth of cargo per day - including US$5.1 billion northbound and US$4.5 billion southbound.

The Suez Canal is an artificial sea-level waterway connecting the Mediterranean Sea to The Red Sea via the Isthmus of Suez.

It is 193.3 kilometres in length and essentially runs in a north-south direction from Port Said, on the Mediterranean Sea, to Port Tewfik, near the city of Suez on the Red Sea.

The canal divides the Asian and African continents, as well as Egypt-controlled Sinai Peninsula to its east from the Egyptian mainland to its west.

The canal took ten years to construct and was officially opened on November 17, 1869.

It provides a more direct and faster route between the North Atlantic Ocean and the Indian Ocean, eliminating the need to navigate the long and treacherous alternative around the Cape of Good Hope.

It reduces a ship's journey from the Arabian Gulf to London by about 8900km, or roughly 10 days sailing time, and saves up to 800 tonnes in fuel consumption.

An extension of the Ballah Bypass in 2014, to 35km in length, increased the canal's two-way capacity, boosting the number of vessels that can pass through the waterway each day from 49 to 97.

But draft restrictions mean some supertankers still cannot transit fully laden, having to offload part of their cargo onto smaller vessels before entering and then reloading that cargo at the other end.

The Suez Canal had about 12 per cent of world trade volume navigate its waters in 2020.

A record 18,880 vessels traversed the waterway last year, carrying a combined cargo of more than one billion tonnes and a combined value of more than US$1 trillion.

About 30 per cent of the world's shipping container trade uses the canal, and fees paid to the Suez Canal Authority totaled US$5.6 billion last year.

Almost 10 per cent of total seaborne oil trade, 20 per cent of global LNG trade and 16 million TEU passed through the waterway last year.

According to the Suez Canal Authority, about 55 million tonnes of grain is shipped via the channel annually.

The vast bulk of this originates in the US, Europe and the Black Sea regions and enters the canal via the Mediterranean Sea on the way to destinations in the Middle East and the Far East.

In 2019, a total of 54.135 million tonnes of cereals transited the canal in dry bulk vessels. Of this, 53.043 million tonnes - or 98 per cent - moved in a north to south direction.

The total volume of oilseeds was 7.8 million tonnes. Of this, 5.908 million tonnes - or 76 per cent - moved from the Atlantic basin to the Indian basin.

Data from the US last week revealed almost 768,000 tonnes of US-inspected grain cargoes were on the way to Asian customers via the Suez Canal.

About 80 per cent of that was corn, 60 per cent of which was on six vessels destined for China.

The other corn destinations were Indonesia, Saudi Arabia and Jordan.

The remaining 20 per cent were a cargo each of sorghum, soybeans and wheat destined for China, Bangladesh and Djibouti, respectively.

The suspension of traffic through the narrow waterway has intensified problems for container shipping lines.

They were already facing disruption and delays in supplying retail goods to consumers due to the coronavirus pandemic and pricing anomalies that have emerged in the global freight market in recent months.

The impact on energy markets is likely to be mitigated for a short time by subdued demand for crude oil and LNG as a result of the pandemic and the traditional low season.

Also, stockpiles that have built-up across the globe in the past 12 months will provide a short-term buffer.

The Sumed Pipeline, also known as the Suez-Mediterranean Pipeline, can also pump 2.5 million barrels of crude oil per day across Egypt from the Red Sea to the Mediterranean Sea.

The uncertainty of passage means dozens of bulk carriers, oil tankers and container ships have already rerouted via the Cape of Good Hope. This adds substantial costs and more than a week to most journey times.

Just a week into the crisis and the effects on global trade and sea freight rates have been building.

But freeing the vessel so quickly has avoided an exponential escalation in global shipping costs across almost all categories.

This story Cargo delays and cost blow-outs likely in the wake of ship blockage first appeared on Farm Online.