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The Ever Given has finally been freed at approximately 04:30
local time after being stuck for almost a week according to
officials. The Rotterdam-bound vessel is capable of transporting up
to 20,000 Twenty-foot Equivalent Units (TEU) of shipping containers
and was carrying cargo from Asia when it became stuck. It is not
the first time the canal has been blocked - smaller vessels such as
the Fabiola was lodged in the Suez Canal for two days in 2016 and
the Maersk Shams was stuck in 2015 but refloated on the same day
with minimal disruption.
The vessel - one of the largest container ships in the world -
became stuck on Tuesday 23 March 2021 in a very narrow part of the
Suez Canal measuring around 985 feet in width. Concerns around the
need to widen the canal are once again being voiced. Since its
opening in 1869, the Suez Canal has been widened through many
infrastructure projects - the most recent being an $8 billion
project in 2015. Despite this, many maritime authorities agree that
the canal infrastructure has failed to keep up with the increasing
demands of growing ship sizes.
According to Port Authorities, a total of 367 vessels are
waiting to pass through the canal, which will take at least three
days to clear. Many of the ships waiting to get through are
carrying livestock, oil, and consumer products such as clothing,
furniture, manufacturing components, and car parts. The immediate
implications of this blockage will likely be felt for months in
some sectors. Oil prices saw a sharp increase on Friday amidst
concerns that the blockage could take weeks to resolve. Brent crude
was higher by 4.2 percent, at $64.57 on Friday, after dropping 3.8
percent on Thursday. However, since the news of the vessel being
freed, the price dropped by $1 to $63.67.
According to John Mothersole, Director at IHS
Markit's Pricing and Purchasing service, aluminum prices began
moving higher last week with regional premiums rising globally.
European billet prices are also reported to have increased between
5% and 7% in Italy and Germany over the past week because of
potential shortages in both countries. Our industrial commodity
analysts expect some near-term market price increases as a result
of the delays. Impacts of the blockage on some regional markets
will happen with a lag, as the scheduled arrival dates to be missed
by ships delayed at the Canal have not yet occurred in more distant
markets.
Even though the ship has now been freed, it appears delivery
problems and port congestion are likely to continue through at
least the first half of April, which will only accentuate the cost
pressures that have built up over the past 10 months from the surge
in commodity prices. Our view is that the rally in commodity prices
will lose momentum and that the rise in goods price inflation
likely this summer will therefore prove temporary.
The incident is unlikely to have any significant long-term
effects on shipping rates although there is expected to be some
knock-on effect to other routes. Several shipping companies have
started diverting their vessels around the Cape of Good Hope, which
adds about 3,500 miles to the journey and up to 12 days. Despite
concerns among global shipping companies over piracy risks, vessels
rerouted around South Africa's Horn of Good Hope would be at lower
risk from Somalia-based piracy than those using the Suez Canal,
which necessitates a transit through the Gulf of Aden. Vessels
traveling between the Cape of Good Hope and Europe or North America
would also pass the Gulf of Guinea at a significant distance from
areas in which Nigeria-based pirates operate.
In addition, there will be added pressure on intercontinental
air cargo as companies look to these services to temporarily take
over transportation of critical goods. It's critical to note that
air cargo capacity was already stretched by the Pandemic. A
12-15-hour flight can easily offset any expected delays due to a
prolonged Suez blockage. However, any increase in demand is likely
to be short-lived due to the extremely high cost of air cargo.
While a Boeing 747-400F can carry a maximum payload of 113,000kgs,
the Ever Given carries 200,000 tonnes of cargo. Therefore,
transportation by planes proves far too expensive and uneconomic
for most long-term global shipping needs.
While this intercontinental traffic jam highlights the need for
better contingency planning, the effects on the supply chain are
likely to be short-lived and relatively insignificant against the
backdrop of post-pandemic world trade. Shipping remains the
dominant method of long-haul freight transport and looks to remain
so for the foreseeable future.
Posted 29 March 2021 by Wilhelm Greyling, Executive Director, Supply Chain Solutions, Economics & Country Risk, IHS Markit