Economic Impacts of the Suez Canal Blockage

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The six-day blockage of the Suez Canal by the mega containership, EVER GIVEN, has been adorning headlines of all major news publications as well as sparking a global meme fest. However, far beyond the incident making headlines, what is more worrying is the deepening of the ongoing supply chain crisis that has already left global shippers and brands fighting price increases and a shortage of goods, following the onset of the pandemic.

Immediate effects of the Suez Canal blockage

Since the blockage started in the early hours of March 23, numerous vessels that were sailing on the Suez Canal route were suddenly halted. With every passing minute, the losses mounted, as the scheduled delivery of the shipments were getting delayed. The BBC News reported the number to be $6.7m per minute! Carriers had to make the difficult choice – either to wait & watch or reroute their ships via the southernmost tip of Africa – the Cape of Good Hope. 

Photo courtesy: Julianne Cona on Instagram

Risk of Rerouting

Rerouting via the Cape would not just add a couple of weeks (depending on the destination port) to the already delayed journey, it would also require more fuel along with the cost of extra surveillance while crossing the pirate-prone seas off the coast of Somalia.

Economic impacts

Though the EVER GIVEN was successfully refloated in the early hours of March 29, the actual knock-on impacts to the supply chain and the greater economy are yet to be seen. With a large number of containerships awaiting passage, carrier giant Maersk said in a statement on their website that they expect the loss of capacity to be 20-30 percent over multiple weeks, depending on market dynamics.” Severe port congestion is also expected as the delayed vessels start arriving at the ports of discharge along with the vessels that are arriving for their scheduled delivery.

The global shipping industry was already facing a supply chain bottleneck with container shortages. This incident has increased this shortage by delaying the movement of empty containers to Asia, where the current demand is among the highest. Low supply combined with higher demand due to the pandemic-related lockdowns has only aggravated the container shortage within the shipping industry. Due to the blocked Suez Canal incident, there is a further expected delay of 1-2 weeks for empty containers to arrive in Asia. This delay may take up to 2-3 months to return to normal.

Impact on freight prices

Based on the shipments that were on the affected vessels in and around the Suez Canal, an estimated $54 billion in trade losses have been reported. About 12% of global trade consisting of about 1M barrels of oil and roughly 8% of LNG pass through the canal each day. Therefore, the prices of important commodities like crude oil and gas were hiked globally, fearing that the blockage may last for over a couple of weeks. 

Suez Canal Authority chairman, Osama Rabie, in a TV interview estimated that damages and losses arising from the EVER GIVEN blockage could cross over $1 billion. German insurer Allianz had said in a recent analysis that the blockage could bring down the annual global trade growth by 0.2 to 0.4%.

According to Freightos Baltic Index, the freight prices on the China/​East Asia to the Mediterranean has seen a 500% hike in the month of March 2021 ($7,485), as compared to March 2020 ($1,478) which is a downward trend when compared to the previous month of February, where the highest recorded price was $8,430. (See below chart). Similarly, on the Mediterranean to China/​East Asia route, the ocean freight costs has jumped 278% in the month of March 2021 ($1524) as compared to March 2020 ($549).

Freight Baltox Index comparing freight prices

Impact on global supply chain

In one of our recent posts, we warned that a breakdown in intermodal connectivity between factories and ports could worsen global supply chain woes.” The Suez canal blockage is a major breakdown. We also mentioned that average shipping delays for containerships from Shanghai to Rotterdam were up to 5.2 days in Feb 2021 from 2.1 days in Feb 2020, and average delays from Shanghai to Antwerp jumped to 9.2 days from 2 days, over the same period.”

What remains to be seen is how freight rates are going to be affected in the coming days and months following the aftermath of the EVER GIVEN incident. The extent of economic loss due to the blockage will rise when additional shipping operation charges, commodity prices and shipping delays are factored in. 

What next?

Although some businesses may not have had a direct impact due to the incident, they should still want to know if any of their suppliers have been impacted by it or not. Having data visibility enables shippers to identify the kind of shipment that is stuck or delayed or rerouted. Though situations such as this cannot be entirely averted, they can definitely be managed well by using supply chain visibility solutions.

Getting all the dots connected in ocean freight is not easy. After all, data is often unavailable and rarely comparable. At project44, we consistently consolidate and evaluate container shipping data from multiple sources to help logistics teams all around the globe stay on top of their shipping operations – whether for day-to-day business or strategic decisions. We do that by delivering reliable data they can trust.