Suez Canal Blockade Crisis: What has the Impact been?

Suez Canal Blockade Crisis

It took 10 years and 1.5 million workers to build the waterway in the 19th century, and one day and one giant ship to clog it in 2021. The vessel has been refloated, but the disruption could linger.

A container ship called the ‘Ever Given’ of a 1,300-foot was freed from the Suez Canal on March 29, 2021 (Monday), a week after it ran aground and blocked other vessels from transiting one of the world’s most important waterways. A human-made waterway, the Suez Canal is one of the world’s most heavily used shipping lanes, carrying over 12 per cent of world trade by volume.

The 120-mile artificial waterway known as the Suez Canal has been a potential flash point for geopolitical conflict since it opened in 1869. Now the canal, a vital international shipping passage, is in the news for a different reason: a blockage affecting more than 300 vessels that sent tremors through the world of maritime commerce.

What led to the vessel’s grounding?

The Ever Given, operated by Evergreen Shipping, is one of the world’s largest container ships, nearly a quarter-mile long. Buffeted by high winds and with poor visibility, it ran aground on March 23, 2021.

Salvage teams had been working on both land and water for six days, dredging sand and removing rock from both ends of the ship, which had blocked passage by any ship. Tugboats aided by a high spring tide eventually managed to move the vessel.

Salvagers had tried several remedies: pulling the ship with tugboats, dredging underneath the hull and using a front-end loader to excavate the eastern embankment, where the bow was stuck. But the vessel’s enormous size and weight — 200,000 metric tons — had made those salvage efforts difficult.

On March 29, 2021(Monday) afternoon, tugboat horns blared as the ship again began moving on its own, finally shifting from its diagonal position across the canal.

Importance of Suez Canal

The importance of the canal stems first and foremost from its location; it is the only place that directly connects the waters of Europe with the Arabian Sea, the Indian Ocean and the countries of the Asia-Pacific.

Without the Suez, shipments travelling between those parts of the world would have to traverse the entire continent of Africa, adding hefty costs and substantially extending their journey times.

A solution to that problem appeared elusive for centuries, until the precious 120-mile waterway was constructed to slither down Egypt and into the Red Sea. It was built over the course of a decade in the mid-19th century -- a feat only possible because the Mediterranean and Red Seas were found to be roughly level in altitude.

The time saved by the passage is almost invaluable. Today, a ship traveling from a port in Italy to India, for instance, would cover around 4,400 nautical miles if it passed through the Suez Canal -- a journey that, at a speed of 20 knots, would take about nine days.

But the second-quickest way to complete that same journey would be via the Cape of Good Hope and around Africa. At the same speed, it would take three weeks to traverse the route, which is 10,500 nautical miles long.

Adding to its importance is that there are no alternatives to the Suez; were it not for the Red Sea stretching up above the Horn of Africa and along Sudan and Egypt, no land masses would be narrow enough to support an artificial waterway that links Europe with the Asia-Pacific.

What has the impact been?

The ramifications of the blockage in the canal, which is believed to handle about 10 percent of global maritime commercial traffic, have been huge. By the morning of March 29, hours before the Ever Given was freed, more than 300 vessels were waiting to pass through the canal. Maritime industry experts have said that such a large backlog could take weeks to clear.

Shipping analysts estimated that the traffic jam had held up nearly $10 billion in trade every day.

The delays could prove very expensive for the owners of ships waiting to transit the canal. Some shipowners had already decided to cut their losses and reroute vessels around the Cape of Good Hope, at the southern tip of Africa, adding weeks to shipping journeys.The owner of the Ever Given was already facing millions of dollars in insurance claims and the cost of emergency salvage services.

Impact on Business

Besides the global trade loss due to delay in cargo shipments, the Suez Canal blockage had also impacted several businesses around the globe, ranging from shipping operators to e-commerce retailers.

Countless retailers around the world — both offline and online — suffered losses due to the blockage as key shipments were delayed. According to experts, evaluating the actual cost of the Suez Canal blockage is difficult as it is hard to determine how much it cost individual businesses around the world. While the disruption may not have a lasting effect, experts feel that the incident could inflate prices of some commodities and goods for a short period.

Impact on Economy

Due to high tides and winds, the ship became wedged on the east bank and lodged diagonally. The salvaging company put in charge of rescuing the ship described it as a ‘beached whale’ as the Golden-class container ship represented an enormous weight on the sand.

Even though the vessel is now free, and trade has resumed, there is a massive backlog of vessels trying to pass. The level of disruption cascaded every 24 hours over a period of six days as more vessels joined the line of transit. There could be congestion at some ports and further exacerbation of supply chains which were already reeling from container shortages. As a result, assembly lines could be left idle as ships will not arrive in time.

This isn’t the first time the Suez Canal has been blocked; it has been blocked over five times since its opening in 1869. Those blockages were mostly intentional due to increased political tension between countries. Nowadays ships are built much larger in size for efficacy, but Ever Given could not withstand the bad weather despite its size.

Only time will tell how badly this incident will affect consumers. For the time being, prices will certainly increase until supply chains return to normalcy. However, this vessel has single-handedly managed to highlight the weak links in the global supply chain.

Stay informed, Stay ahead and stay inspired with MBA Rendezvous