Suez Canal: What impact will blockage have on global trade?

Ships are backing up on the vital route which links the Mediterranean and Red Sea, with even the slightest delay resulting in congestion

Ben Chapman@b_c_chapman
Wednesday 24 March 2021 15:01
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File footage shows Evergreen ship on Suez Canal

The world’s most vital trade artery is blocked by a 224,000-ton container ship, leading to a build-up of traffic that could cause major problems if it is not cleared soon, according to shipping experts.

“Even the slightest delay in traffic can result in congestion and disturb the delivery of goods and commodities on both sides,” according to analysts at S&P Global Platts.

The most important factor determining the severity of any delays will be how quickly the vessel, Ever Given, can be removed.

It has been partially re-floated and industry figures said they expect it to be removed swiftly, allowing congestion to ease.

Why is the canal so important for trade?

The 120-mile-long canal between the Red Sea and Mediterranean is the shortest route between Asia and Europe. Around 1.2 billion tons passed through the canal on 19,000 ships in 2019 – roughly one eighth of all goods transported by sea that year.

Millions of tons of manufactured goods make their way from China and South Asia to Europe via the canal. It’s also a key route for oil tankers going to and from the Middle East.

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The Ever Given has run aground at a busy time of year. Trade is picking up after the Chinese New Year which sees factories close down in the world’s manufacturing powerhouse.

Businesses are seeking to restock in the hope that coronavirus restrictions will ease in the coming months.

There is already a global shortage of shipping container space and Covid-19 safety procedures have been causing delays at ports.

What impact will the blockage have?

Delays have already begun in the hours following the incident. About 42 vessels seeking to travel northbound and 64 southbound are now waiting, Bloomberg reported.

The longer the Ever Given is stuck the more that number will rise. Around 10 million barrels of oil and petrol are reportedly backed up near the entrances of the canal.

Chris Evans, international supply chain expert at Colliers International, was confident the Ever Given would be moved quickly, meaning delays to goods shipments would be minimised.

“If it doesn’t get cleared quickly it will cause a lot of delay and people will have to start looking at shipping goods via the Cape of Good Hope,” he said.

“It will cause a hiccup and bunching of ships at various ports in Europe. Anything that’s behind it will come rushing through. Discharging vessels is already slow because of Covid procedures, as is pick-up of containers.

He added: “The knock-on effect, the delays, start to build very quickly. We will have to go back to that old-fashioned thing: patience.”

While most ships are at sea for weeks and can absorb a couple of days of delay, a backlog at ports can cause issues rapidly, Mr Evans said.

“Only modern ports like London and Thames Gateway can cope with it. Volume soon builds up, it doesn’t take long.

However, he was sanguine about the impact on businesses and consumers. “I wouldn’t have thought there’s any major cost impact for businesses. We should not worry too much about gaps in supplies of products.”

Samir Madani at TankerTrackers told the Financial Times: “The canal is a key chokepoint for global trade.

“If they can free the vessel quickly then the impact will be minimised but any prolonged blockage would have severe consequences, from affecting oil prices and shipping rates to forcing container vessels to take the much longer route around Africa.”

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