Global Impact of the Suez Canal Traffic Jam
Photo of the “Ever Given” stuck in the Suez Canal in Egypt.
Source: Food Turkey
Earlier this year, a massive container ship blocked the Suez Canal in Egypt, preventing global trade for six days. Not only did the obstruction effect trade for that week, it created a domino effect that has lasted for months after the incident. How could just one container ship create so much chaos? Let’s take a look into why the canal obstruction has exposed the fragility of global trade, and has affected the global supply chain so immensely.
A Brief History Of the Suez Canal
Acting as a portal between the Mediterranean Sea and the Indian Ocean, the Suez Canal has been one of the most important bodies of water when it comes to world trade. Stretching 120 miles from Port Said in Egypt to the city of Suez, the canal took ten years to build. French interest in the body of water are what caused the construction of the canal. During times of war, the canal has also operated as an important waterway. The strategic positioning of the Suez Canal made it a powder keg during both World War I and World War II. The canal was nationalized in 1956 by Egypt’s President Gamal Abdel Nasser causing the Suez Crisis. The Suez Crisis is one of the most notable parts of history for the canal, where Israel, France, and Great Britain threatened to invade the Suez, eventually causing a war. The canal also acted as a border between warring Egypt and Israel, shutting it down for six days and leaving more than a dozen ships trapped in the canal for the entire duration. The Suez Canal is now owned and operated by the Suez Canal Authority, who have stated its use is intended to be available for ships from all different countries.
Importance of the Suez Canal
Map view of Suez Canal route and Cape of Good Hope route
Source: Daily UK News
The Suez Canal is a vital part of international trade, and for good reason. A study issued by the National Bureau of Economic Research of the United States of America concluded that due to its location at the heart of the world, the Suez Canal is by far the most crucial maritime route. Instead of having to circumnavigate around the African continent to reach the Indian Ocean, the Suez canal allows for a more direct and effective route for shipping between Asia and Europe. For a supertanker carrying crude oil to Europe, it would take an extra 6,000 miles around Africa’s Cape of Good Hope to reach its destination without the Suez canal. Approximately 12% of global trade and 30% of global container traffic traverses through the Suez canal, transporting over $1 trillion USD worth of goods annually. In 2020, around 19,000 ships used the canal, translating to approximately 50 ships per day that journey from the Suez Port and Port Said in Egypt ($3-9 billion worth of cargo each day). Along with commercial trade, the Suez Canal enables the transfer of an estimated 7-10% of the world’s oil, and 8% of liquefied natural gas. On a daily average, approximately one million barrels of oil travel through the canal. Because of its critical importance in the process of global trade, the Suez Canal has had to grow to meet the demands of maritime traffic. In 2015, the Egyptian government opened at 35 km channel parallel to the canal in order to enable two-way traffic, and allowing larger vessels to pass through. Also adding to its importance is that there are no better alternatives to the Suez Canal. The closest thing to the Suez Canal is the Panama Canal, but it is unable to accommodate vessels of 20,000 TEU.
The 2021 Suez Canal Traffic Jam
Top view of the Ever Given lodged in the Suez Canal
Image Credit: TIME
On March 23, 2021, the Suez Canal suffered an extreme blockage from the container ship “The Ever Given”. On the way to Rotterdam, the Ever Given turned sideways after losing the ability to steer during a severe sandstorm. The 20,000 TEU container ship obstructed the Suez canal from March 23-March 29, a full six days. The blockage paralyzed all maritime traffic, resulting in a chaotic holdup for an estimated 450 vessels, including five large container ships. This included 41 bulk carriers, and 24 crude oil tankers. After five days of trying to dislodge the ship, the Ever Given was finally towed free by tugboats. The disruption in the global supply chain made it more expensive to move goods across the world, and also caused shortages of everything at a time of unprecedented demand. After the vessel was freed, it was impounded by the Egyptian government for refusing to pay $916 million in government demanded fees, including $300 million for loss of reputation.
Impact of the Suez Canal Blockage
Aerial view of vessels stuck waiting in the Suez for the Ever Given to be dislodged
Image Credit: Airbus
The six day disruption of the Suez Canal had a domino effect on global trade, causing problems both short term and long term. Each hour that the vessels remained stalled prevented $400 million in goods, and the Suez Canal Authority lost around $15 million per day. It is projected that an estimated $9.6 billion in trade was prevented between March 23 and March 29, causing a ripple effect down the line. At the time, certain markets were already at the risk of collapsing, but the delays caused by the Suez Canal blockage created even more shortages for industries with preexisting shortages. According to a study by Allianz, between March 23 and March 26, each day that the blockage remained could decrease global annual trade growth by 0.2-0.4%, as well as cost $400 million USD per hour. The blockage of the Suez Canal further exacerbated supply chains that were already feeling the impact of container shortages during the Covid-19 buying boom. After the disruption, carriers were warned to expect months of supply chain issues and potential surges in Asian imports to North America and Europe. However, since the incident blocked most imports from Europe, the United States did not feel as intense of an impact as Europe did.
The Suez Canal incident not only caused disruptions across different regions, but different industries as well. Companies had to choose whether or not they wanted to wait and ride out the uncertainty of the incident, or if they should reroute their vessels around Africa’s Cape of Good Hope. Either way, the decisions were both costly. To reroute to a longer shipping route means higher cost, risk of time sensitive matter being delayed, and spoiled food/therapeutics. The incident had such a heavy impact on both regions and industries because the whole world depends on proper shipping to create and distribute products. With the disruption of not one, but six days, severe losses occurred for companies that did not have all the resources to make their products. Not only have these companies had to deal with global disruptions, but also extreme fluctuations in the demands of consumers since the beginning of the Pandemic. The Suez Canal incident exposed the fragility of global trade and supply chain processes, shedding light on the need to look into supply chain resilience issues. The global trade market is nothing to be messed with, and as the blockage of the Suez Canal shows us, it only takes one mishap to unleash a world of chaos and complication.
References
History.com Editors. (2018, August 21). Suez Canal. HISTORY. https://www.history.com/topics/africa/suez-canal
Jaeger2021-04-27T15:25:00+01:00, J. (n.d.). Bracing for impact: Supply chain risk management post-Suez Canal blockage. Compliance Week. https://www.complianceweek.com/supply-chain/bracing-for-impact-supply-chain-risk-management-post-suez-canal-blockage/30298.article
Suez Canal Blockage (2021): Background and Impact [UPSC Notes]. (n.d.). BYJUS. https://byjus.com/current-affairs/suez-canal-blockage-2021/
Trade, N. Z. M. of F. A. and. (n.d.). The Importance of the Suez Canal to Global Trade - 18 April 2021. New Zealand Ministry of Foreign Affairs and Trade. https://www.mfat.govt.nz/en/trade/mfat-market-reports/market-reports-middle-east/the-importance-of-the-suez-canal-to-global-trade-18-april-2021/
