The cargo ship blocking the Suez Canal is holding back traffic that carries nearly $ 10 billion worth of goods every day, so a quick logjam cleanup is key to mitigating the economic impact.
Efforts to dislodge the Ever Given container ship continued on Thursday and traffic regeneration on the critical man-made waterway linking the Mediterranean to the Red Sea and providing a shortcut between Europe and Asia.
HOW IMPORTANT IS THE CHANNEL TO SHIPPING?
About 10% of all world trade flows through the 120-mile (193-kilometer) channel, which allows tankers and container ships to avoid a long journey around the southernmost tip of Africa.
Iconic shipping magazine Lloyd’s List estimates that goods worth $ 9.6 billion pass through the canal every day. Lloyd’s says about $ 5.1 billion of that traffic goes west and $ 4.5 billion east.
About a quarter of that traffic takes place on container ships, as currently buried in a side wall of the canal. Lloyd’s says more than 50 ships traverse the canal on an average day carrying 1.2 billion tons of cargo.
WHAT EFFECT DOES THIS HAVE ON THE SUPPLY CHAINS?
When it comes to shipping goods from Asia to Europe, there are virtually no alternatives such as rail or truck transportation, said Sharat Ganapati, an economics professor at Georgetown University. The blockage will delay a range of parts and raw materials for European products, such as cotton from India for clothing, Middle Eastern petroleum for plastics and auto parts from China, he said.
“Blocking the most crucial node in the trade network will have significant prosperity effects around the world,” said Woan Foong Wong, professor of economics at the University of Oregon.
There will be less direct impact on the United States, which receives the most shipments from Asia on the west coast. Still, imports from Europe could be slowed, and the block could prevent empty sea containers from being returned to Asia, adding to the container shortage caused by the rising demand for consumer goods during the pandemic.
“If you get a bump in one place, it will seep through the system,” Ganapati said. “It will take a while for things to be taken apart.”
IS THE SUPPLY CHAIN IN PROBLEMS?
The situation in Suez could exacerbate problems for a supply chain already under pressure from the pandemic and a surge in purchases.
Virus-related restrictions have trapped crews on merchant ships. Congested ports have resulted in container ships anchoring off the coast of California and unable to dock and unload their goods. Shortages of semiconductors and rare earths have plagued manufacturers of automobiles and other consumer products.
“We have a lot of things that indicate a fragile supply chain at risk for disruption, and now you’re adding one more thing to that,” said Julie Swann, a logistics expert at North Carolina State University.
HOW WILL CONSUMERS BE AFFECTED?
It’s possible that US consumers will feel some impact if shipping is interrupted for more than a few days. Finished products from Asia to the United States go across the Pacific. However, some components for products assembled in Europe and shipped to the US may be delayed due to channel termination.
Mark Zandi, chief economist at Moody’s Analytics, said the channel blockade is unlikely to have much of an impact on the US or the global economy unless it continues for weeks or months.
It could push up oil prices, “but we’re not talking dollars on the barrel, we’re talking pennies on the barrel,” Zandi said.
However, the German economy could suffer if the blockade slows shipping of auto parts to that company’s major auto makers, Zandi said.
And Spain, Italy and France could see higher gas prices as they depend on oil shipments through the canal, Ganapati said.
WHAT ABOUT OIL SHIPMENTS?
According to Lloyd’s, about 1.9 million barrels of oil pass through the canal every day. That is about 7% of all sea oil. The shutdown could affect shipments of oil and natural gas from the Middle East to Europe. S&P Global Platts Analytics said that on an average day, about 1 million barrels of crude oil and 1.4 million barrels of gasoline and other refined products flow north through the channel to Europe from the Middle East and Asia.
Jim Burkhard, head of crude oil research at IHS Markit, said the impact on the global oil market will be limited if the channel is released soon. Energy demand is still weak due to the pandemic, and the Sumed pipeline has unused capacity to move oil around the canal, from one end at Alexandria, Egypt, to a terminal at the Red Sea.
“If this took a month, there are other options – you can sail around Africa. That would of course entail additional costs, ”said Burkhard. “If this ship is moved in the next week, it will be a footnote in history when it comes to the oil market.”
The price of international benchmark crude oil rose after the freeze, but prices fell on Thursday. Analysts attributed the price drop to an industry group’s report on large inventories in the US and concerns that pandemic-related lockdowns in Europe will further reduce demand for energy – outweighing concerns about the ship’s stranding.
CAN OIL-RELATED PRODUCTS GO SLOW?
Shipments of refined petroleum products such as gasoline and jet fuel bound to Europe are also going through the channel and will be delayed. Burkhard said refineries in Europe could be forced to temporarily increase production to make up for the slowdown, Burkhard said.
Tankers using the Suez carry 8% to 10% of the world’s liquefied natural gas, according to research firms. Wood Mackenzie analyst Lucas Schmitt said there were only a few LNG shipments near the channel when the blockage occurred.
“We don’t expect major bottlenecks unless the situation continues,” said Schmitt. He added that the timing of the incident – it is spring, when demand for LNG tends to decline – means it will have less of an impact on prices than recent delays on the Panama Canal. Those delays caused an increase in LNG shipping rates, according to data from S&P Global Platts Analytics.