Suez Canal blockage disrupted global supply chains already strained by pandemic

The Suez Canal, one of the world’s most vital trade routes, was blocked by a container ship longer than the Eiffel Tower. Economists and analysts have said that the blockage would further disrupt a global supply chain that has already been stretched thin by the Wuhan coronavirus (COVID-19) pandemic.

The enormous ship, known as the Ever Given, weighs 220,000 tons and carries around 20,000 containers. The ship had been blocking traffic in the canal since its grounding on Tuesday, March 23, despite international efforts to free it.

It took until Tuesday, March 30, for the ship to finally be refloated and freed.

The resulting traffic jam has ensnared over 200 vessels loaded with goods and running on $1.3 billion worth of crude oil. Chicago-based supply chain analyst project44 warned that the cost of the bottleneck is growing by the day, with approximately $50 billion worth of goods now estimated to be delayed.

According to commodities analyst S&P Global Platts, the Suez Canal fiasco is not about the Ever Given alone. It is also about the entire trading schedule for millions of tons of commodities. Therefore, the blockage is expected to have a ripple effect through manufacturing supply chains and shipping costs.

Blockage could mean higher prices for consumers

The Ever Given got stuck because of a sandstorm in the canal, which is maintained by the Suez Canal Authority (SCA) of the Egyptian government. Wind speeds reaching 40 knots or roughly 46 miles per hour blew the massive vessel sideways, wedging its bow in one bank. Its stern was left nearly touching the other.

Tugboats and a dredger worked most of Tuesday to dig out the ship. Several countries, including Japan and the United States, joined the international effort to dislodge the ship on Friday. In a statement, the SCA said it valued the help from the U.S. and that the government looks forward to cooperating with the country.

Unfortunately, the tugboats made very little progress. It took a whole week for the ship to finally be freed, creating a massive bottleneck of ships waiting at both ends of the canal. This could have disastrous consequences for a container-shipping industry that is already operating at full capacity despite the pandemic.

Even though the ship has already been freed, analysts expect the fallout from the incident to last for several days, threatening to further stretch the strained global supply chain.

For instance, manufacturers of cars, computers and electronic gadgets are facing a shortage of semiconductors. Some automobile makers have even closed their factories after Texas’ historic winter storm led to power outages that affected petrochemical factories and plastic production.

The Suez Canal blockage only compounds global shortages. Economists say companies and consumers may see higher shipping costs and prices of goods. Freight costs for shipments from Asia to the Mediterranean region have already tripled since November. Shipping capacity has also been struggling since last year because of increased demand for goods as millions around the world turn to online stores to shop for their needs.

Greg Knowler, senior journalist for market intelligence firm IHS Markit, said cargo owners can expect canceled sailings, ports being skipped and an increase in the amount of delayed cargo.

Knowler also warned that congestion across Europe beginning April is inevitable. He said it is just the extent of the delays that remains to be seen.

Meanwhile, Brian Coulton, chief economist at credit rating agency Fitch Ratings, says the blockage may further constrain the recovery of the global economy in the near term. In particular, the delays from the blockage will likely result in higher prices for goods.

Coulton said merchants will find alternative routes to move their containers around the globe. Already some of the shipping companies have rerouted their vessels around the southern tip of Africa. But such contingency plans will add extra costs, which could mean inflation. (Related: Coffee prices soaring due to “systemic” coronavirus supply chain disruptions.)

Follow MarketCrash.news to learn more about how the Suez Canal blockage affects the global economy.

Sources include:

Breitbart.com

BBC.com

SCMP.com

WSJ.com