Suez Canal Disruption Effects Linger

The 400-meter-long Ever Given vessel was trapped for six days across the Suez Canal, causing havoc for global maritime supply chains, before finally being freed on March 29th, 2021. This comes at a time when the maritime ecosystem is already facing issues with port congestion and poor schedule reliability. The blockage of the 224,000-ton container ship has already caused vast economic damage with further implications yet to be seen. European countries are expected to see the most significant impact, along with some U.S. retailers such as Walmart and H&M.

The Suez Canal is one of the world’s most critical shipping lanes, as it is the shortest route between Europe and Asia. Around 12% of global trade passes through this route daily on 50 ships carrying over $9 billion worth of goods. The stranded Ever Given, carrying 18,300 containers, caused significant delays in transportation of essential shipments, preventing $400 million worth of trade every hour it blocked the canal. The blockage created a delay of 369 ships across each side of the canal and forced some ships to reroute around Africa, extending their journey by almost three weeks. The delayed cargo shipments are believed to have caused a total trade loss of $54 billion so far and have impacted many businesses, from shipping operators to e-commerce retailers.

The extent of economic loss, however, will likely be significantly greater. Despite the ship being cleared, there is still a huge backlog of ships needing to be unloaded, which will take around a week, according to Maersk. Prices of oil and gas rose due to uncertainty over when the Ever Given would be dislodged. Companies face higher shipping costs, as the blockage caused freight rates to increase and likely remain high for another couple of months. Those whose ships were forced to take the longer route past the Cape of Good Hope are likely to face a significant financial hit. Evaluating the total cost of the blockage will be very difficult due to the vast numbers of companies affected and related knock-on impacts.

In some parts of the world, the disruption at the Suez Canal provided some temporary relief for ports already facing severe congestion. The U.S. ports of Los Angeles and Long Beach are still facing lengthy waits as cargo volumes increase due to significant growth in e-commerce. It is believed that there will be at least a week’s delay, where ships will not arrive at their destinations on time. Eventually, as the backlog at the canal clears, ships will start arriving at their destination and the congestion will pick up again. This will be a particular problem for Western European ports who will then see peak congestion, according to Antwerp Port Authority.

The extensive queue of ships and subsequent disruption to maritime shipping has forced some companies to look to air and rail transportation for goods. However, air capacity is hard to come by, particularly in Europe, as many flights are being used for the transportation of COVID-19 vaccines, testing kits, medical supplies, and retail goods. Increased demand for air freight will cause rates to increase at least for the next few months.

The cargo division of China’s Railway Group has seen a huge surge in orders and inquiries. Space on the rail cargo lines between China and Europe is being filled faster than ever. While up to 80% of trade between Europe and Asia flows through the Suez Canal, the recent disruption has already led to proposals to expand rail capacity to increase its share of the traffic and ship more goods over land.

The blockage at the Suez Canal has presented another potential supply chain issue and emphasized the need for companies to have contingency plans. Companies may alter their modality splits to include a greater percentage of rail freight transportation in the future. Railways offer a cheaper and less time-consuming form of transport. The journey from China to Germany via railways takes two weeks, while congested waterways extend the journey to at least a month. The cost per container by rail is also about a fifth of the cost of air freight.

There is an immediate need for more containers; however, the utilization of 20K TEU containers does not align with fast, agile delivery in the world of e-commerce. Much like rail cargo in the U.S. (which adopted Precision Scheduled Railroading (PSR) to fill large amounts of cars versus moving fewer cars faster), the maritime industry needs to move toward smaller ships, moving faster with port-to-port direct routes, with faster unload/reload capabilities. Further digitization such as blockchain efforts by IBM, Microsoft, and Oracle will reduce paperwork and transfer loads in a few hours instead of days. This should be an opportunity for maritime to respond and reinvent instead of reacting and repeating their mistakes when the next disruption happens.