A skyscraper-sized container ship has become wedged across Egypt’s Suez Canal and blocked all the traffic in the crucial waterway. This has put 12% of the total world trade into trouble which was already strained by the COVID-19 pandemic. Panama officials warned the traders about the issue citing that it could take at least a week to fix the problem.
Panama-flagged ship carrying a 220,000-ton cargo between Asia and Europe ran aground after getting blown by the strong winds while entering the Suez Canal from the Red sea. The Behemoth cargo ship has been stuck in the narrow passage, and has blocked maritime trade. This is the shortest route for the Asian world to get its crude oil from the west. Fears that the blockage could hold on shipments of crude oil, which have pushed the oil prices by 4% in the international market. Just within few hours, more than 20 oil tankers each carrying dozens of oil barrels and refined products were affected by the jam.
The Suez Canal is an artery of the world trade which connects the Mediterranean with the Red Sea, providing a short route. The next possible route is the Cape of Good Hope at the southern tip of Africa that obviously takes a considerably longer time for the trade. The stranding of the MV Ever Given, a 400-meter long ship has raised the question of passing the new-generation massive cargos through the relatively tight and confined space of the narrow canal. Nearly 20,000 ships used the canal in 2020, according to the Suez Canal Authority which gives an average of 51.5 ships per day.
In 2017, a Japanese container had blocked the Suez Canal after it got stuck due to a mechanical issue. In this case, the Egyptian authorities deployed tug boats, and the ship started to refloat within few hours of operation. In the latest incident too, the canal authorities have deployed Tugboats and dredgers which are currently working to dislodge this ultra-giant ship. But the operation could easily take a week considering the size of the ship.
In this scenario, it will be still early to firmly declare the full impact of the crisis but the blockage is likely to disrupt the industry supply chain. This blockage has badly impacted the global trade but this is not a piece of bad news for few players such as the air shipping industry which might quote a higher rate as the new route will cost up to 30% more for the same amount of cargo transport.
In the meantime, this nightmare which became a reality will add to the already increased risk premium for crude oil and other refined products. Also, the degree of risk has increased in the Panama region which highlights the chances of an attack on oil facilities amid the regional and political tensions in the region. This trade jam has exposed the fragility of the trading network that the whole world relies on, for its goods transport.
