The incident began on Tuesday morning, when the 400-metre container ship-Ever Given-weighing 200,000 metric tons got stranded in the Suez Canal and led to a massive traffic jam.
This trade route, which enables direct shipping between Europe and Asia, has around 50 ships passing through it every day which amounts to approximately 12% of world trade.
The unending backlog is making ships take detours via Africa which would prove to be a time consuming and costly affair. Rerouting around South Africa’s Cape of Good Hope would add 6,000 miles to the journey and something like $300,000 in fuel costs for a supertanker delivering Middle East oil to Europe, as per a Bloomberg report.
Adarsh Hegde, Joint Managing Director,
says this will create more ripples to the ongoing container inventory shortages and spike freight rates further. “The Suez Canal is one of the busiest commercial waterways and important shipping lanes in the world. By forming a key shipping route for vessels passing from the North Atlantic to the Indian Ocean region, it accounts for the passage of around 30% of the global container shipping volumes. A massive container ship running aground and blocking such an important shipping lane can have adverse repercussions for the global export trade,” he says.
Global shipping had already been in the doldrums even before the Suez Canal blockage had come to light. The ongoing container shortage due to the export-import mismatch had led to freight rates seeing a sharp surge, majorly impacting trade volumes. Now, this issue again spells disaster and does not augur well for the exporter community for whom relief seems nowhere in sight.
According to German insurer Allianz, the blockade could cost global trade $6 billion to $10 billion a week and every week the Suez jam continues could knock off about 0.2 to 0.4 percentage points off annual trade growth. Oil rose over 3% on Friday as data shows more than 30 oil tankers are now waiting on either side of the canal. The rates for Aframax and Suezmax class of oil tankers in the Mediterranean have been the first to react to the shortage of vessels in the region.
Moreover, the seasonal nature of certain industries such as apparel and perishable goods will also make it harder for them to recover from the situation. Mahavir Pratap Sharma, Immediate Past Chairman, Carpet Export Promotion Council (CEPC) doesn’t mince his words when he says it is a challenging situation. “If the ships have to go around Africa, time and costs will significantly increase. It will take atleast 12 more days via that route. So delivery time will be delayed. And no insurance will cover for industries that have seasonal cycles such as apparel. It will be unfortunate if freight prices increase when they are already so high,” he highlights.
Global shipping companies issued updates on their advisories detailing the disruption on movement of goods. Shipping major Maersk said that so far, nine Maersk container vessels and two partner vessels have been directly affected. “Efforts are being made to move all northbound vessels out of the canal to facilitate a clear passage and continuous convoys when the Evergreen vessel has successfully been released,” it said in its latest update. Maersk says for every day that passes, more vessels will reach the blockage. The shipping major has already redirected about 4 ships around the Cape of Good Hope.
As per estimates, close to 200 ships are currently caught up in the traffic snarl. “The impact on the global supply chain as a result of the vessel blockage in the Suez Canal depends on how long the route remains impassable. We closely follow the refloating operations and are currently looking at all alternatives possible,” Maersk said in its statement on Thursday.
An overwhelming majority -about 80% – of the global trade by volume moves by sea. Needless to say, a backlog of this scale will leave a trail of devastation in its wake.
Global trade had already been going through its share of turmoil during the pandemic last year and global supply chains had been thrown off gear. Exports from India had seen a dip for most part of last year and it was only beginning to gain momentum in 2021. However, there seem to be further impediments ahead now in their road to recovery. “What also needs to be considered is that the Suez Canal itself operates at a fairly high degree of efficiency and it takes a certain amount of time for a vessel to cross it. In case of a backlog as large as this, even if they operate at a 100% efficiency, the backlog will continue for an extended period, the domino effect of which is expected to sustain for the medium term,” Sanjay Bhatia, Co-Founder, Freightwalla states.
DHL says it is monitoring the situation very carefully and is in close contact with its customers and the respective ocean carriers. “As it’s currently difficult to estimate how long the situation will persist, we do not want to make any assessments of the possible effects. However, as a globally operating freight forwarder risk scenarios and potential disruptions are an integral part of our contingency planning,” says DHL.
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