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  • Writer's pictureCrest Economics

Suez Canal blockage spells disaster for Global Supply Chains- March 2021

When megaship container carrier, MV Ever Given, ran aground into Egypt’s Suez Canal last Tuesday, an enormous backlog of shipping in one of the world’s key trading routes is creating severe disruptions in global logistics.

The 400 metre long, 224,000 tonne ship is wedged across the waterway dividing continental Africa from the Sinai Peninsula, in which almost 50 ships transport goods. Opened in 1869, the Suez Canal is arguably the world’s second most important waterway – a crucial link for the various forms of cargo, oil and natural gas with 12% of the world’s trade flowing through the waterway.

A total of 206 large container ships are waiting to enter or stuck in the canal, with potential for this number to keep rising. Shipping lines are confronted with the dilemma of waiting for the blockage to clear which could take days or even weeks, or reroute to the Cape of Good Hope – adding an additional week of travel and significant costs expenses.

Salvatore R.Mercogliano, an associate professor of history at North Carolina’s Campbell University, warned that there could be a ‘major knock-on effect for global shipping between Mediterranean and the Red Sea’. On top of the existing disruptions to world trade caused by the pandemic, the blockage will spell disaster for global supply chains plagued already by high rates of ship cancellations, shortage of containers and slower handling speeds at ports.

The estimated value of goods trapped in transit will build up by $US9.5 billion ($12.5 billion) a day, according to Lloyd’s List. Oil analytics firm Vortexa reveals that Russia and Saudi Arabia are the top two exporters of oil through the Suez Canal with India and China are the main importers. Whilst the canal only accounted for 4.4% of total oil flows, prolonged disruption would complicate the supply of oil, leading to a potential spike in prices.

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