How bad is the Suez Canal blockage for global trade? Depends who you ask

Understandably, speculation and opinion are rampant as global supply chains reckon with a ship grounding that has blocked passage of a shipping artery through which more than 10% of global trade flows.

Tugs, dredgers and shoreside heavy machinery have been unsuccessful so far in budging the box ship, and there remains no clear timeline for freeing the ultra large container ship (ULCS) Ever Given from where it came to rest, angled roughly 45 degrees and jammed bow-first into the bank of the Suez Canal, after veering off course, reportedly in windy conditions.

Boskalis chief executive Peter Berdowski made headlines by saying the project to get Ever Given unstuck and back underway could take days or it could take weeks, requiring machinery moved to the site in the middle of the Sinai Desert to at least partly offload the containers on board to lighten and buoy the vessel. Mr Berdowski has an inside view on the project because Boskalis is the parent company for Smit Salvage, one of the companies engaged to assist in refloating the vessel.

Whether the closure of the Suez lasts for days or weeks, delays to schedules are significant and the domino-effects are mounting. Just two days in, more than 100 vessels had been forced to sit at various gathering points around the canal, and, even if the canal reopens in short order, it will take a while to clear the growing backlog, resulting in a compounding effect and knock-on delays to vessels that have yet to even reach the waters near to the canal.

Despite these inevitable scheduling complications, however, shippers and ports have tolerances and resiliencies built in, and as ING senior economist Joanna Konings points out, this incident is just part of a broader set of factors already wreaking havoc with shipping schedules.

“Shipping capacity between Europe and Asia was already squeezed during the Covid-19 crisis, with high rates of ship cancellations as the pandemic began and shortages of containers and slower handling speeds continuing to affect world trade volumes,” Ms Konings said.

Scheduling problems are not a new issue, particularly in the container shipping sector, Ms Konings said.

“As the Suez Canal Authority works to free the canal, traffic is building up, and missing inputs will disrupt supply chains. But delays measured in days are normal in container shipping, and in the current context of much more acute capacity pressures at some ports, this setback on its own will not do much to trade volumes or cause much further harm to supply chains. The ongoing effects of shipping liners’ route choices, including container shortages and limits on port handling speeds, are likely to be more visible in production and trade data in the months ahead,” she said.

The container sector is not, of course, the only shipping sector affected by the Suez blockage. Energy cargoes, too, are being impacted.

“The immediate impact of delays in the canal will centre on European – Asian trade, adding delays to already disrupted supply chains affecting oil and refined products’ supplies,” Ms Konings said. “Around 10% of world trade by tonnage and 9% of the world’s seaborne oil (equivalent to 5.5M barrels of oil per day) [passes] through the Suez Canal over the course of a year.”

In one example outlined by Rystad Energy head of gas and power markets Carlos Torres Diaz, a closed Suez Canal will stop half a million tonnes of LNG each week from moving between Qatar and Europe.

“In a worst-case scenario where the canal remains blocked for four weeks, then there would be 2M tonnes of delayed cargo deliveries,” he said

The voyage from Suez to northwest Europe (eg Isle of Grain in the UK) takes around nine days at an average speed of 15 knots. The complete route from Qatar to northwest Europe takes around 17 days and the alternative route around the Cape of Good Hope would take more than 30 days, making this an unviable alternative, at least for the time being.

“Even if the route is liberated within one week, there is a large queue of cargoes lining up to cross the canal, so the return to normal flow will take some time. And the longer it takes to liberate the route, the longer the queue of vessels,” Mr Torres said.

Reinsurance brokerage McGill and Partners head of hull and marine liabilities David Smith agrees, and said the price tag for all the delays would be “hefty”.

“A figure of US$100M has been mentioned by some in the industry,” Mr Smith said. “However, the final bill – which will be made up of compensation for delays, loss of revenue for the Canal Authority, potential damage to cargo and the cost of refloating the ship – is likely to be even more expensive.”

Mr Smith aimed the blame squarely at the trend within container shipping to build bigger and bigger vessels.

“The salvage industry has been warning that container ships are simply getting too big for situations like this to be resolved efficiently and economically. This incident may force shipbuilders, owners and cargo operators to sit up and listen.”

Speaking of blame and price tags, maritime solicitor and Tatham & Co partner Stephen Askins said that Ever Given shipowners Shoei Kisen Kaisha Ltd would need an act of God to avoid being saddled with liability claims related to the grounding’s disruptive impacts on deliveries.

"The incident will have lawyers and Club claims handlers reaching for their well-thumbed copies of the Suez Canal Rules of Navigation which runs to 367 pages and is an exhaustive regime governing the use of the Canal," Mr Askins said.

“The responsibilities of shipowners is set out in clear terms at Article 4 which provides that the owners of vessels using the Canal are ‘...responsible for any damage and consequential loss caused either directly or indirectly by a vessel ... or to obstruct the navigation in the Canal’. To have a chance of avoiding liability, the owners will have to show that the incident did not arise from a mistake or negligence. Owners cannot limit their liability and the Canal Authority cannot be blamed,” he said.