Caixin
Mar 27, 2021 12:13 AM
WORLD

Grounded Container Ship Still Blocking Suez Canal, Snarling Global Trade

A handout picture released by the Suez Canal Authority on March 24
A handout picture released by the Suez Canal Authority on March 24

(Bloomberg) — Dislodging a container vessel blocking the Suez Canal will take until at least Wednesday, extending the disruption to global supply chains for oil, grains, cars, and many other goods, officials said.

The halt to traffic through one of the world’s most important waterways is stretching a container-shipping industry that’s already operating at full capacity. It threatens costly delays for European companies that rely on a steady flow of Asian imports and for consumers who’ve grown fond of fast online purchases during the pandemic.

The 200,000-ton Ever Given, one of the world’s largest container ships, ran aground last Tuesday, and is still firmly wedged across the vital maritime trade route, according to multiple reports. Refloating it will take a week or more, according to people familiar with the matter who asked not to be identified. Rescue efforts had initially been expected to last only a couple of days.

As tugs and diggers work to free the ship, the waiting queue of oceangoing carriers loaded with billions of dollars-worth of oil and consumer goods has risen to more than 300 from 186 on Wednesday, according to Bloomberg data.

“The delays are likely to increase costs, adding to already widespread inflationary pressure on supply chains,” said Chris Rogers, lead trade analyst for S&P Global Market Intelligence’s Panjiva. “The short-term ripple effects will be an increased potential for stock-outs in consumer goods and the risk that just-in-time manufacturing supply chains that had already been roiled by Brexit and commodity shortages may face further interruptions.”

The global trade network was already showing signs of strain due to the year-long economic disruption of the coronavirus pandemic.

The world’s biggest flow of merchandise — between China and the U.S — has faced nearly five months of bottlenecks at the ports of Los Angeles and Long Beach. Importers have been waiting several weeks for arriving cargo, with the knock-on effect that exporters are unable to secure empty steel boxes needed to deliver their shipments abroad.

The fear now is that the Suez incident will exacerbate Europe’s logistical challenges, resulting in canceled sailings, container shortages and higher freight rates.

Should cargo need to be unloaded from the stranded vessel, or extensive repairs made to the canal itself, “then the downtime could certainly last at least two weeks,” according to Randy Giveans, senior vice president of Equity Research for Energy Maritime at Jefferies LLC. The Ever Given could hold almost $1 billion worth of goods, according to IHS Markit Ltd.

Other vessels that had been scheduled to sail through the Suez Canal en route between Europe and Asia are beginning costly and time-consuming detours around Africa as the shipping sector scrambles to keep deliveries moving. South Korea’s HMM Co. instructed a container ship that departed the U.K. on Monday to divert around South Africa’s Cape of Good Hope to avoid the gridlock.

At least seven liquefied natural gas vessels have had routes adjusted away from the canal, according to Kpler analyst Rebecca Chia, and major shippers including A.P. Moller-Maersk A/S and Hapag-Lloyd AG are also studying detours.

Shipping costs are also surging. The price to ship a 40-foot container from China to Europe has almost quadrupled from a year ago, adding a new burden to global supply chains already reeling from a pandemic that has caused shortages and delays.

The canal blockage is currently holding up about 2 million barrels a day of oil flows, according to Braemar estimates, and snarling bulk carriers that ship products including wheat and iron ore. Global manufacturers are already preparing for delays to both the shipment of finished goods, and materials that are crucial to their production lines.

A list of cargo aboard a HMM Co. vessel waiting outside the canal to return to Asia gives an indication of the sweep of industries caught up in the disruption, with goods on board including wood, machinery, frozen beef, paper, powdered milk, furniture, beer, frozen pork, auto components, chocolate, and cosmetics.

Caterpillar Inc., the largest U.S. machinery producer, said it is facing shipment delays and even considering airlifting products if necessary, while Japan’s Envision AESC, a supplier of electric vehicle batteries, said it relies on the Suez Canal for some imports of electrodes.

For the container lines that haul about 80% of global merchandise trade, a prolonged bottleneck between Europe and Asia risks throwing off ship schedules set months in advance so importers can plan their purchases, manage inventories and keep store shelves stocked or production lines running.

For a supertanker delivering oil from the Middle East to Europe, rerouting around South Africa’s Cape of Good Hope would add 6,000 miles to the journey and around $300,000 in fuel costs.

Rates to charter oil tankers in some regions have climbed higher since the blockage first appeared. Suezmax vessels, which typically haul 1 million barrels through the canal, are now fetching about $17,000 a day, the most since June 2020. If more ships are forced to sail around the southern tip of Africa, that will boost rates as journey times increase.

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