Suez Canal blockage that has disrupted shipments to the east-west could affect India’s trade and reduce key production assets while increasing travel costs as the shipping rate increases due to the crisis. India’s export of oil, textiles, furniture, cotton, car parts, and machinery parts to Europe, North America, and South America could be delayed by 10-15 days after the 400-meter Ever Given ran aground on Tuesday and collided with two banks, blocking the canal. In terms of imports, oil, steels and raw materials such as fragments and mechanical components used in assembly lines, basic chemicals such as phenol and aniline will be delayed. Blockage can lead to a 5-15% increase in freight prices from India on key lines, according to a rate by Shipsy, an export-import platform.
“The incident did not come at a very bad time when freight prices were showing signs of slowing down after surging 4x-8x on different routes,” said Soham Chokshi, co-founder of Shipsy. Indian trade in these areas through the Suez Canal is estimated at $200 billion annually. About 160 ships were stranded in a 193-kilometer canal since Tuesday, waiting for authorities to refloat the vessel and clear the way. In the middle of the day, more than 50 ships cross the canal between the Mediterranean Sea and the Red Sea. The route accounts for about 12% of world trade. Crude prices dropped after a short spike as this is a declining season.
Delays will exacerbate the shortage of containers and increase freight prices, said exporters, as the canal is one of the busiest trade routes in the world for oil and consumer goods shipments between Asia and Europe. “Shipping lines may need to go around the Cape of Good Hope if the channel is not removed soon. That could take an additional seven to eight days and 500-800 tonnes more of the fuel in one way, depending on the speed,” said the former merchant navy captain.
“According to the current situation, we expect the blockage to be removed from the canal in 7-10 days but the situation will be restored only after two weeks,” said Ajay Sahai, director general and CEO, Federation of Indian Export Organizations. “Exports of engineering equipment to Europe may be uneconomical, giving local infrastructure a chance,” said Ravi Sehgal, MD of Kolkata-based engineering firm Carnation Industries Ltd. “March-April is the time when services are sought in Europe, and now we expect them to keep their orders,” Sehgal said. “Also, the import of steel goods and machinery parts used in the assembly line will have an impact.”
India imports scrap from Africa, the US, and Europe. Total imports of steel and iron in April-January 2020-21 were $6.5 billion. Delays caused to global supply chains will lead to goods piled up in key ports of origin in the east, experts said. The supply chain can disrupt the production of many sectors such as automotive and electronics, which are already facing shortages.
If the situation is not resolved quickly, ships heading west from the east could begin to cross India’s most important ports to make up for lost time or reduce its lot size with each boat, experts said – known as empty sailing by the trade. “Right now, there is a very fluid situation. However, the consequences of this could be significant, such as how we are still dealing with the negative effects of the epidemic,” said Sanjay Bhatia, cofounder of Freightwalla. World shipping leader Maersk said nine of its ships were anchored in the region, awaiting the opening of a waterway.
