The Suez Crisis Reloaded

In today’s Finshots we talk about how a massive stranded vessel in the Suez Canal might potentially disrupt global trade.

The Story

The Suez Canal is a man-made waterway that connects the Mediterranean Sea and the Red Sea. If you’re not into Geography, think of it as a vital maritime trade route that connects much of Asia and Europe. We say vital and not indispensable because we do have alternatives. For instance, If you don’t want to ply your vessel through the Suez, you could choose to go around Africa by traversing the Cape of Good Hope.

The only problem — It can take an extra two weeks and it can be very very expensive. So people opt to move cargo through the Suez purely for economic reasons. However, considering it's a man-made waterway, Suez does have its own problems. For starters, it’s quite narrow. In some places, extremely narrow. So you need favourable conditions to navigate these tight spots. If you don’t have them at your disposal, then you could find yourself in a spot of bother.

For instance, the star cast of the story, “Ever Given” — a massive shipping vessel operated by Taiwan Based Ever Green group likely saw strong headwinds as it made its way through the canal a few days ago. And it’s quite possible that these high winds threw the vessel off-kilter and blew it on one side of the canal. And considering the ship’s massive size, it has currently jammed the entire waterway bank-to-bank. Nobody can pass through right now.

And while attempts are being made to clear the logjam, it is still prudent to ask — What’s the impact going to look like?

Well, according to reports, about 100 odd vessels are waiting on both ends of the canal for the waterway to open up once again. At this point, these stranded vessels can do one of two things. They can choose to wait or make the decision to go around the Cape of Good Hope. If they decide to go around the Cape, then there will be a 2-week delay. At which point you have to start tallying up the cascading effects of the blockage itself. For one, there will now be massive crowding at the ports considering multiple ships are likely to load and discharge at the same time. And when these consignments reach the port, the importer or the shipowner has to unload the container in a fixed time frame. If they don’t, then they have to pay an extra charge called Demurrage. So somebody will have to pay up.

Also, shipowners can claim insurance from Ever Given considering they were responsible for the delays. The ship’s insurer will likely pay out some claims, although, it remains to be seen what will actually be covered. Even if you decide to wait it out, it’s likely you will still have to face similar problems. In the worst case, however, it’s possible that the logjam persists for far longer than anybody anticipates, and you are forced to traverse the Cape of Good Hope. Then the delay could turn from a few weeks to a month or two.

But as it stands, ship owners and industry experts expect traffic to resume in a few days. Will there be some short term disruptions during that time? Maybe, but it is unlikely to cause long-lasting issues. While some people predicted oil prices might rise in the near term considering several oil tankers are now stranded, experts now contest that this is unlikely to happen considering most institutions have enough reserves to battle short term disruptions. So yeah, by all accounts, this might just be a minor blip. Unless that is, the Ever Given refuses to budge.

Until next time…

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Correction: In a previous version of the article, we noted that traversing the Suez would require skilled captains. However, passage through the canal is usually done under supervision of a local pilot (Egyptian pilot). The error is regretted.