By Ulf Bergman
Source: Airbus Space
The grounding of a 20,000 TEU container vessel in the Suez Canal, and the subsequent suspension of all traffic through the shortcut for shipments between Asia and ports in the Mediterranean and the Atlantic Basin, has highlighted its importance to world trade. Around twelve per cent of the global trade is passing through the canal annually, with on average 52 vessels transiting daily. Initial assessments by the canal authority suggested the incident was likely to be resolved within a few days, but with the suspension of traffic on its third day the Dutch salvage company SMIT is less optimistic and warns that it could take weeks to resolve the situation. Efforts to refloat the stricken vessel have so far yielded little and if additional dredging and the removal of ballast and fuel are not sufficient, a time-consuming process of removal of containers may be required. However, higher tides at the end of the week could potentially provide a window of opportunity for the salvagers to free the vessel from the canal wall.
Given the importance of the canal to world trade and the volume of traffic passing through on a daily basis, it is perhaps more surprising that occurrences such as this one do not occur more often. Incidents that are affecting operations in a major way are rare and are generally dealt with quickly. The increasing size of the vessels employed in global trade is adding to the risks that the number of incidents could increase in the future. The grounding also occurred in a part of the Suez Canal used by both north and southbound traffic, which is likely to increase the pressure on Egyptian authorities to expand the system of dual channels to the southern part of the canal as well in order to avoid a repeat in the future.
The extent of the impact on the shipping industry is a function of how quickly the situation can be resolved. A successful refloating very soon would mean that the impact would be limited, as the canal can accommodate the transit of more than a hundred vessels a day and the current congestion could be cleared in a matter of days. However, the more gloomy stance expressed by the salvage company is likely to make many routing decisions more difficult, as a recovery operation taking weeks would make a case for going the long way around Africa. A re-routing around the Cape of Good Hope will add ten to fourteen days to a voyage and generate additional fuel costs, although saving on the considerable canal fees. There are already close to 200 vessels waiting to sail through the canal and, assuming an average flow of tonnage, the weekly build-up of vessels awaiting transit is 364. Clearing such a backlog would take quite some time and, hence, many vessel operators have announced that they are starting to evaluate their options.
As discussed in Ocean Analytics’ previous contribution, the shipping industry often benefits from frictions and inefficiencies injected by external forces, such as weather conditions, into the global supply chains. This is no exception, as tonnage trading in the spot market and caught in the congestion or facing a reroute around Africa will be unavailable for longer. There are currently around 40 dry bulk vessels affected by the congestion and the number will likely continue to grow in the coming days. An already tight tonnage supply situation in the dry bulk sector is, at least temporarily, likely to become somewhat tighter, especially in the mid-sized tonnage. The longer the “Ever Given” remains lodged into the canal wall, the more likely it is that freight rates could be impacted positively.
Additionally, the situation is likely to further exacerbate the problematic supply situation of available shipping containers. The increased transit times for the container vessels heading for European ports are likely to further reduce the supply of empty containers in Chinese ports. In light of the current strong container shipping rates, this would further incentivise carriers to reposition empty equipment to China rapidly, without attempting to fill them with cargo for the backhaul. The high container freight rates have already meant that many cargoes of American agricultural commodities have been rejected by container shippers and had to be shipped as dry bulk. An even tighter container supply situation could contribute to even more cargoes being directed towards the dry bulk sector with beneficial effects for the tonnage demand,