The cargo ship that blocks the Suez Canal is blocking the traffic that carries almost $ 10 billion worth of goods every day, so a quick elimination of the impasse is the key to limiting the economic consequences.
Efforts continued on Thursday to dislodge the container ship Ever Dado and restoring traffic on the important man-made waterway that connects the Mediterranean to the Red Sea and provides a shortcut to sea transport between Europe and Asia.
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HOW VITAL IS THE TRANSPORT CHANNEL?
About 10% of all global trade flows through the 120-mile (193 km) channel, which allows oil tankers and container ships to avoid a long journey around southern Africa.
The iconic navigation newspaper 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 is to the west and $ 4.5 billion to the east.
About a quarter of that traffic is made on container ships – like the one currently buried in a side wall of the canal. Lloyd’s says that more than 50 ships cross the channel in an average day, carrying 1.2 billion tons of cargo.
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WHAT EFFECT WILL THIS HAVE ON SUPPLY CHAINS?
When it comes to shipping goods from Asia to Europe, there are virtually no alternatives, such as rail or truck transport, said Sharat Ganapati, professor of economics at Georgetown University. The blockade will delay a number 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 you have the most central node in the trade network being blocked will have important effects on welfare around the world,” said Woan Foong Wong, professor of economics at the University of Oregon.
There will be less direct impact on the United States, which receives most shipments from Asia on the West Coast. Still, imports from Europe may be delayed, and the blockade will prevent empty containers from being returned to Asia, increasing the container shortage caused by increased demand for consumer goods during the pandemic.
“If there is a protrusion in one place, it will seep into the system,” said Ganapati. “It will take a while to untie things.”
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IS THE SUPPLY CHAIN PROBLEMS?
The situation in Suez could aggravate the problems of a supply chain that is already under pressure from the pandemic and an increase in 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 goods. The scarcity of semiconductors and rare earth elements has plagued automakers and other consumer products.
“We have a lot of things that indicate a vulnerable supply chain is at risk of disruption, and now you put one more thing on top of that,” said Julie Swann, a logistics expert at North Carolina State University.
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HOW WILL CONSUMERS BE AFFECTED?
U.S. consumers may feel an impact if shipping is interrupted for more than a few days. Finished products from Asia to the United States pass through the Pacific. However, some components of products assembled in Europe and shipped to the USA may be delayed by the closure of the channel.
Mark Zandi, chief economist at Moody’s Analytics, said that blocking the channel is unlikely to have much of an impact on U.S. or global economies unless it drags on for weeks or months.
This could raise oil prices, “but we are not talking about dollars per barrel, we are talking about cents per barrel,” said Zandi.
Germany’s economy may suffer, however, if the blockade delays the shipment of auto parts to the company’s major automakers, said Zandi.
And Spain, Italy and France can see higher gas prices because they depend on oil shipments through the channel, Ganapati said.
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WHAT ABOUT OIL SHIPMENTS?
About 1.9 million barrels of oil per day pass through the channel, according to Lloyd’s. This represents about 7% of all oil transported by sea. The closure could affect oil and natural gas shipments 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 Asia north through the channel to Europe in 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 channel is cleared up soon. Energy demand is still weak due to the pandemic, and the Sumed pipeline has unused capacity to transport oil around the channel, from one end near Alexandria, Egypt, to a terminal near the Red Sea.
“If it lasted a month, there are other options – you can browse Africa. Of course, that would increase costs, ”said Burkhard. “If this ship is moved next week, it will be a footnote in history with regard to the oil market.”
The price of international benchmark oil rose after the blockade, but prices fell on Thursday. Analysts attributed the drop in price to a report by an industry group on large inventories in the United States and to concerns that pandemic-related blockages in Europe would further affect energy demand – overcoming concerns about the stuck ship.
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CAN OIL-RELATED PRODUCTS BE DELAYED?
Shipments of refined petroleum products to Europe, such as gasoline and aviation kerosene, also pass through the channel and will be delayed. Burkhard said refineries in Europe could be pressured to temporarily increase production to make up for the loss, Burkhard said.
Tankers using Suez transport 8% to 10% of the world’s liquefied natural gas, according to research companies. Wood Mackenzie analyst Lucas Schmitt said that only a few LNG shipments were close to the channel when the blockade occurred.
“We don’t expect major bottlenecks, unless the situation drags on,” said Schmitt. He added that the timing of the incident – it is spring, when LNG demand normally declines – means that it will have less impact on prices than the recent delays in the Panama Canal. These delays caused an increase in LNG shipping rates, according to data from S&P Global Platts Analytics.