The Suez Canal: The Cost of Lag

 The past week brought an interesting chain of events. Ever Green, a 1300 feet, 200,000 metric tonnes container ship, lodged itself in the Suez Canal blocking traffic for just about a week. We got news today it has finally been dislodged with the help of tugboats, and high tide.

So the question is, why is it such a big deal? Well, for one, no one else could pass through the canal. This effectively stopped the most fundamental step to trade: Transportation. Now, let's look at the numbers:

• About USD$ 9 billion worth of goods pass through the canal every day. This means about about $54 billion for the 6 days. That's about the GDP of Uruguay!
• Ever Green had about 20,000 truck-sized containers
• The biggest loss came to Egypt, as the Suez Canal is in their territory. They lost about $95 million in revenue.
• With the Suez Canal blocked, many ship containers took a detour around Africa (passing by South Africa), which costs an extra hundreds of thousands of dollars in fuel and other costs.
• With the delay, it will take about 10 days to clear the backlogs of ships waiting to pass through the canal. Only after that will everything go back to normal

So why does this matter to us? Isn't it just like a delayed Amazon package? No. Countries rely heavily on trade for their day-to-day matters. Europe relies on the Middle East for oil and gas. A 6 day delay (along with the 10 day's worth of backlogs) means there is a shortage looming. As consumers, we can expect a temporary rise in prices. According to Capt. John Konrad, the founder and CEO of the shipping news website gcaptain.com, after the breakdown following the beginning of COVID, we finally achieved a just-in-time, albeit fragile, shipping. Before, there were big warehouses in all countries that held the supplies but now the ships are the warehouses. Therefore, in a "normal" world, the costs can be written off as there was excess supply but now, the supply chain is very fragile and any cracks or breaks will affect the prices i.e. the burden can fall on the consumers. Maybe, the government can gift subsidies. This is plausible but with the financial strain that has come due to COVID, it seems almost impossible that it could happen. 

Read More:

https://www.cbc.ca/news/business/cargo-ship-ever-given-suez-canal-stern-salvage-1.5967819