The Suez blockage and its implications on trade and visibility

Much like COVID-19, the Suez Canal crisis was an incident cut from the same cloth in paralyzing maritime operations—albeit in different means. While the pandemic shrunk port operations due to the necessity of social distancing, the Ever Given sealed shut the maritime bottleneck between Asia and Europe. Running aground and staying there for six days, the Ever Given stopped over 400 vessels from reaching their destination ports across the two continents.

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Roughly 13% of the world’s maritime trade and 10% of all oil shipments exit the Suez Canal, witnessing around 19,000 vessel crossings each year. The immediate aftermath of the crisis saw vessels rerouted by shipping lines across alternative routes, including around the Cape of Good Hope at the tip of Africa. This episode is expected to make a measurable dent in annual global trade growth.

The German insurance firm Allianz estimates growth to reduce by 0.2% due to the six-day crisis.

Though the holdup eased after relentless round-the-clock operations by the Egyptian authorities, and the ripples set off by the logistics bottleneck have far-reaching consequences. The global maritime ecosystem operates as a cohesive unit, with ship routes and container movement mapped to precision across ports. This ‘balancing act’ of maritime container trade was riled by the black swan event, as the containers aboard the queued ships at the Suez number in the hundreds of thousands. 

Global ports, especially in Europe and Asia, went on an overdrive, preparing themselves for almost simultaneous port calls from the delayed vessels. Port congestion is a persistent issue across several major ports, anticipated to be exacerbated by the Suez canal crisis. Port congestion is pernicious, seeping through ports and into drayage operations. Thousands of trucks are in need to haul all containers aboard a vessel, and simultaneous port calls caused by the crisis will significantly draw down truck availability for vessels that follow. Congestion can prop up the situation, creating chaos that can be sustained over weeks.

Port traffic apart, the Suez Canal crisis did nothing to help the already-tight container capacity available in the market. Container freight rates have risen spectacularly since last summer as strong trade volumes outstripped available capacity. The Suez crisis has pushed Asia-Europe shippers to ship goods via alternate routes, including moving cargo from Asia via the US to Europe.

Notably, freight prices across the Atlantic have climbed by roughly 40% from the US East Coast to North Europe and by nearly 30% between North Europe and the US East Coast in the first two weeks of April.

Aside from the race to book available containers, shippers are also struggling to reserve berths at ports. This is complicated by factors like longer dwell times due to lack of availability in intermodal chassis and decreased port activity due to continuing COVID-19 restrictions. Demurrage and detention charges have been soaring for shippers and carriers—a predicament that has gone unsolved for months across major ports—will worsen due to the Suez crisis.

The implications of a logistics gridlock resonate across several industries as material availability becomes a cause for concern. For instance, the automotive industry is in deep trouble with sourcing semiconductor chips for auto production, with the congestion pushing wait times further. 

The maritime industry has moved from being favorable to shippers to becoming a ‘carrier market.’ A global trade lane outage adds more pain to shippers, as disarray supply chains and tight capacity availability will burden shipper bottom lines. This crisis could serve as a wake-up call for logistics stakeholders to actively pursue operational visibility and keep their business flexible to meet such unforeseen disruptions.