EXPLAINER: Suez Canal block could hit product supply chains
The pictures of a cargo ship lodged across the Suez Canal are vivid, but what impact will the blockage have on shipping and consumers
March 25, 2021, 11:12 PM
6 min read
Share to FacebookShare to TwitterEmail this articleThis satellite image from Cnes2021, Distribution Airbus DS, shows the cargo ship MV Ever Given stuck in the Suez Canal near Suez, Egypt, Thursday, March 25, 2021. The skyscraper-sized cargo ship wedged across Egypt's Suez Canal further imperiled global shipping Thursday as at least 150 other vessels needing to pass through the crucial waterway idled waiting for the obstruction to clear, authorities said. (Cnes2021, Distribution Airbus DS via AP)
The cargo ship blocking the Suez Canal is holding up traffic that carries nearly $10 billion worth of goods every day, so a quick clearing of the logjam is key to limiting the economic fallout.
Efforts continued Thursday to dislodge the Ever Given container ship and restore traffic on the critical man-made waterway that connects the Mediterranean to the Red Sea and provides a shipping shortcut between Europe and Asia.
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HOW VITAL IS THE CANAL TO SHIPPING?
About 10% of all global trade flows through the 120-mile-long (193-kilometer-long) canal, which allows tankers and container ships to avoid a long trip around the southern tip of Africa.
The iconic shipping journal Lloyd’s List estimates that goods worth $9.6 billion pass through the canal every day. Lloyd’s says about $5.1 billion of that traffic is westbound and $4.5 billion is eastbound.
About one-fourth of that traffic is on container ships — like the one that is currently burrowed into one side wall of the canal. Lloyd’s says more than 50 ships traverse the canal on 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 transportation, said Sharat Ganapati, an economics professor at Georgetown University. The blockage will delay a range of parts and raw materials for European products such as cotton from India for clothes, petroleum from the Middle East for plastics, and auto parts from China, he said.
“The fact that you have the most pivotal node in the trading network being blocked is going to have important welfare effects around the world,” said Woan Foong Wong, an economics professor 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 blockage will prevent empty shipping containers from being returned to Asia, adding to a container shortage caused by rising demand for consumer goods during the pandemic.
“If you get a bump in one place, that is going to percolate through the system,” Ganapati said. “It is going to take a while to get things un-gummed up.”
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IS THE SUPPLY CHAIN IN TROUBLE?
The Suez situation could compound issues for a supply chain already under pressure from the pandemic and a surge in buying.
Virus-related restrictions have trapped crews on merchant ships. Congested ports have led to container ships anchoring off the California coast, unable to dock and unload their goods. Shortages of semiconductors and rare-earth elements have plagued manufacturers of cars and other consumer products.
“We have lots of things indicating a vulnerable supply chain at risk for disruptions, 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?
It's possible that U.S. consumers will feel some impact if shipping is disrupted for more than a few days. Finished products from Asia to the United States go over the Pacific. However, some components for products that are assembled in Europe and shipped to the U.S. could be delayed by the canal closure.
Mark Zandi, chief economist at Moody’s Analytics, said the canal blockage likely won’t have much impact on the U.S. or global economies unless it drags on for weeks or months.
It may push up oil prices, “but we are not talking dollars on the barrel, we are talking pennies on the barrel,” Zandi said.
Germany's economy could suffer, though, if the blockage delays the shipment of auto parts to that company's large car manufacturers, Zandi said.
And Spain, Italy, and France could see higher gas prices because they rely on oil shipments through the canal, Ganapati said.
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WHAT ABOUT OIL SHIPMENTS?
