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- Upasana Sarkar, Tanya James
(Editor, Senior Columnist)
If you haven’t been living under a rock, you’d have probably heard about #SuezBlocked by now. But do you understand what the whole fiasco is about and how a big ship getting stuck resulted in the loss of over millions of dollars?
Let us first get a glimpse into the Suez Canal and the impact it has on world trade. It is a 193 km long canal that opened in 1869 and is presently one of the busiest waterways in the world. To give you an idea about just how important a trading route it is, 12% of global trade by volume and 7% of the world’s crude oil is conveyed through the canal. It eliminates the need for cargo ships to travel around the Cape of Good Hope in Africa, thus reducing distance by nearly 7000 kilometers and in turn, saving expenditure on fuel, reducing time and also ship operating costs.
After it’s opening for international navigation, the Canal no doubt primarily served as a boon for Mediterranean countries. This also resulted in the establishment of several Mediterranean ports, which transported mainly to Central and Eastern Europe, and boosted the local Mediterranean economy.
According to Lloyd’s List, $9.6 billion worth of goods pass through the route daily - $5.1 billion westwards and $4.5 billion eastwards. In fact, it is of such great global significance that it even led to a worldwide humiliation for Western powers re-enforcing an end to Great Britain's role as one of the world rising powers. But, more on that later.
Moving onto what exactly happened - In recent news, global trade was impacted after the Ever Given, a container ship the length of four football fields got stuck in the Suez Canal for nearly a week, serving as a barrier for other cargo carriers, causing a traffic jam of nearly 300 other ships and halting goods worth nearly $10 billion. This incident placed major stress on already battered global supply chains, with shortages of products like coffee, toilet paper, furniture, auto parts, clothes, oil and other imported goods being expected. The shortages of products also impacted assembly lines, with many fearing their shut down. All this, a year after supply chains were disrupted due to the coronavirus pandemic. Not to mention, several other carriers had livestock on board, which made the situation even more strenuous, considering the refloating operation was expected to take anywhere between a few hours to a few weeks.
Fortunately, on 29th March, the marine vessel was finally freed at 3 pm Egyptian standard time and smooth flow of traffic resumed by 6 pm. The first ships to pass through were the ones carrying livestock. The Ever Given was steered towards the Great Bitter Lake to inspect for damages to the vessel and it's cargo. According to the shipping authorities, there were previously two refloat attempts made with tugboats and dredgers. However, it was a combination of around the clock digging and dredging, 14 powerful tugboats of varying sizes and full moon induced spring tides, that finally managed to free the gigantic vessel.
It is unknown to many that since its opening in 1869, the Suez Canal has witnessed five closures, excluding the most recent one due to the Ever Given. The first time was in 1956, after then Egyptian President Gamal Abdel Nasser declared the nationalisation of the Canal, a decision that faced severe opposition from Britain and France. This came to be known as the Suez Canal Crisis.
In 2004 and 2006, two other boats, called the Tropic Brilliance (an oil-tanker) and the Okal King Dor (a cargo ship) got lodged in the Canal and caused it to shut down for three days and eight hours respectively.
In 2017, yet another ship, the OOCL Japan faced a steering gear malfunction and caused a blockade for a few hours.
Countries located closer to the Canal were likely to have registered the greatest impact from the choking of the waterway, while countries farther away, such as the USA was less impacted as it receives goods from several other parts of the world, especially Asia. This also meant that after freeing the cargo container, the ships that arrived at the ports obviously experienced a delay in offloading goods due to congestion at these ports. India itself is one of the biggest importers of crude oil and other products through the Suez Canal, with nearly two-thirds of our country’s crude oil being sourced from the Gulf region. If the Panama-flagged shipping container had not been freed, it would have resulted in highly inflated crude oil prices, due to supply shortage and delay. The episode could also have especially affected shipments of textiles from India, petroleum from the Middle East and auto parts from China, amongst others, if it had prolonged further.
The owner of Ever Given is Shoei Kisen Kaisha, a subsidiary of Imabari Shipbuilding and has a liability coverage of $3.1 billion. Evergreen’s Protection and Indemnity liabilities insurance coverage is provided by Mutual UK P&I Club. The ship is insured in the Japanese market as well. The owners and insurers were expected to be on the receiving end of claims for revenue loss up to millions of dollars. They could also face insurance claims from the Suez Canal Authority for loss of revenue and other ships whose passage have been obstructed. There are also anticipations of payment for canal damage as the refloat operation required digging around the grounded ship. The owner of the Ever Given, Shoei Kisen Kaisha, declared General average. For those of you left wondering what this means, general average is basically a maritime law which states that in case of any emergency situation which requires voluntary sacrifice of the vessel or the cargo for the overall safety, the loss is split by all the stakeholders. It is very rarely declared and even more rarely followed through.
Many sea vessels resorted to going around the Cape of Good Hope which was definitely longer and costlier than going through the Suez Canal. People were quick enough to point out the irony and joked about embracing tradition where modernity failed. The internet, quite predictably, was full of memes and Evergreen became quite the internet sensation.
However, on a serious note, this re emphasized the world’s dependence on the canal for trade and explained why trade through the Suez canal alone added up to 2% of Egypt’s entire GDP. The incident also brought international attention to the narrow width of the canal making people wonder if efforts should be made to widen it artificially. The Sumed pipeline also was considered as an alternative to the Suez canal for transportation of oil from the Persian Gulf region to the Mediterranean. Russia also took this opportunity to promote its Arctic Shipping Routes.
After the freeing of the Ever Given, economists state that although it is unlikely that the incident will impact global trade for longer than a few weeks, it serves as an omen to companies that rely on supply chains with no room for error, and shines a spotlight on the sheer vulnerability of our global supply chains and how they have to be re-examined. This impact on global trade is directly proportional to global welfare. Therefore, it is highly essential for companies dependent on only narrow supply chains, with not many other alternatives to reconsider these chains and modify them to avoid such mishaps, and in turn, another domino effect in the future.
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