Ship blocks Suez Canal

Ship blocks Suez Canal

The lockdown will delay a variety of materials for European products such as cotton from India, oil from West Asia for plastics and auto parts from China.

The freighter blocking the Suez Canal is holding back traffic that carries nearly $ 10 billion worth of goods every day, so quick resolution of the traffic jam is key to limiting the economic consequences.

Efforts continued Thursday to dislodge the Ever Given container ship and restore traffic on the important man-made waterway that connects the Mediterranean to the Red Sea and provides a shipping shortcut between Europe and Asia.

How important is the canal for maritime transport?

About 10 percent of all world trade flows through the 120-mile-long (193-kilometer-long) canal, allowing tankers and container ships to avoid a long journey around the southern tip of Africa.

The iconic shipping magazine Lloyd’s List estimates that goods worth $ 9.6 billion pass through the channel every day. Lloyd’s says that about $ 5.1 billion of that traffic goes west and $ 4.5 billion east.

Approximately a quarter of that traffic is carried out on container ships, such as the one currently excavated in a sidewall of the canal. Lloyd’s says more than 50 ships cross the canal on an average day, carrying 1.2 billion tons of cargo.

What effect will this have on supply chains?

When it comes to shipping goods from Asia to Europe, there are virtually no alternatives like rail or truck transportation, said Sharat Ganapati, an economics professor at Georgetown University. The lockdown will delay a variety of parts and raw materials for European products such as cotton from India for clothing, oil from the Middle East for plastics, and auto parts from China, he said.

“The fact that the most fundamental node of the commercial network is blocked will have important effects on well-being around the world,” said Woan Foong Wong, professor of economics at the University of Oregon.

There will be a less direct impact on the United States, which receives the majority of shipments from Asia on the West Coast. Still, imports from Europe may be delayed and the lockdown will prevent empty shipping containers from being returned to Asia, adding to the container shortage caused by rising demand for consumer goods during the pandemic.

“If there is a hit in a place, it will leak through the system,” Ganapati said. “It’s going to take a while to get things fixed.”

Is the supply chain in trouble?

The Suez situation could compound problems for a supply chain already under pressure from the pandemic and increased purchases.

Virus-related restrictions have trapped crews on merchant ships. Congested ports have caused container ships to anchor off the California coast, unable to dock and unload their cargo. The shortage of semiconductors and rare earth elements has affected automakers and other consumer products.

“We have a lot of things that indicate that a vulnerable supply chain is at risk of disruption, and now it adds something else to that,” said Julie Swann, a logistics expert at North Carolina State University.

How will consumers be affected?

US consumers may be shocked if shipping is interrupted for more than a few days. Finished products from Asia to the United States go through the Pacific. However, some components of products that are assembled in Europe and shipped to the US could be delayed due to the channel closure.

Mark Zandi, chief economist at Moody’s Analytics, said the channel lockdown probably won’t have much of an impact on the economies of the United States or the world unless it goes on for weeks or months.

It can drive up oil prices, “but we are not talking about dollars per barrel, we are talking about pennies per barrel,” Zandi said.

However, Germany’s economy could suffer if the lockdown delays the shipment of auto parts to that company’s big automakers, Zandi said.

And Spain, Italy, and France could see higher gas prices because they depend on oil shipments through the canal, Ganapati said.

What about oil shipments?

About 1.9 million barrels of oil a day pass through the canal, according to Lloyd’s. That is about seven percent of all oil transported by sea. The shutdown could affect shipments of oil and natural gas from the Middle East to Europe. S&P Global Platts Analytics said that about 1 million barrels of crude oil and 1.4 million barrels of gasoline and other refined products flow from the Middle East and North Asia through the canal to Europe on an average day.

Jim Burkhard, who heads crude oil research at IHS Markit, said the impact on the global oil market will be limited if the canal is cleared soon. Energy demand remains weak due to the pandemic, and the Sumed pipeline has unused capacity to move oil through the canal, from one end near Alexandria, Egypt, to a terminal near the Red Sea.

“If this lasted a month, there are other options: you can sail around Africa. Of course, that would add costs, ”Burkhard said. “If this ship moves into the next week, it will be a footnote in history when it comes to the oil market.”

The benchmark international crude price rose after the lockdown, but prices fell on Thursday. Analysts attributed the price drop to an industry group’s report on large American inventories and concerns that pandemic-related lockdowns in Europe will further affect energy demand, outweighing concerns about the stuck ship.

Could petroleum-related products be slowed down?

Shipments of refined petroleum products destined for Europe, such as gasoline and jet fuel, also pass through the canal and will be delayed. Burkhard said refineries in Europe could be pressured to temporarily increase production to make up for the slack, Burkhard said.

Tankers using the Suez carry 8 to 10 percent of the world’s liquefied natural gas, according to research firms. Wood Mackenzie analyst Lucas Schmitt said only a few LNG shipments were near the canal when the lockdown occurred.

“We don’t expect big bottlenecks unless the situation drags on,” Schmitt said. He added that the time of the incident, is spring, when the demand for LNG generally decreases, it means that it will have less impact on prices than the recent delays in the Panama Canal. Those delays led to a sudden increase in LNG shipping rates, according to data from S&P Global Platts Analytics.