Evergreen Marine blockage at the Suez Canal
The 200,000-tonne ship operated by Taiwanese company Evergreen Marine is one of the world’s biggest container vessels with a length of four football pitches and can carry around 20,000 containers.
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After the rare transportation issue occurred on Tuesday at the Suez Canal, which sees about 12% of total global trade moving through it, the prolonged event is spiralling into a global crisis as the blockage is still delaying many oil and gas tankers.
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By GlobalDataSince Tuesday, multiple laden vessels have been indicating delays for Suez transit. As of Wednesday morning, there were seven vessels carrying crude, 15 carrying refined products, five liquefied natural gas (LNG) vessels, and two liquefied petroleum gas carriers, either waiting or approaching the canal.
Attempts to clear the ship from the canal have been ongoing with a salvage squad from the Netherlands attempting to dislodge the ship since Thursday. Multiple methods are being tried as part of the ongoing operations, including tugs to pull and push the ship, dredging sand and silt, and lightening the load on board.
While concentrated efforts to free the ship are being made, they have made little progress so far and experts predict that it could take weeks to remove the Ever Given.
The stranded container ship is usually carrying up to an estimated $9.6bn of goods each day, according to shipping data.
In comparison, figures from shipping expert Lloyd’s List estimate the canal’s westbound traffic at about $5.1bn per day and the eastbound daily traffic at around $4.5bn, highlighting the vast economic impact of the blockage
Ever Given’s grounding impact on oil prices
According to commodity markets intelligence Kpler Research, as of 26 March, there are 10 impacted vessels, six laden and four ballast with expired ETAs for Suez Canal Transit, as well as one vessel, Delta Hellas, waiting in the middle of the Red Sea.
Three out of the six laden vessel cargoes are destined for Asia, and three cargoes are headed to Europe. In total, the waiting vessels have a combined volume of 9.8mbbls of oil.
Some shipping companies have already started to divert their vessels around the southern tip of Africa, which could add more than 10 days to their journeys.
Marlin Santorini, chartered by Mercuria, has diverted and is observed to be sailing via the Cape of Good Hope instead. Three other vessels, Kriti Vigor, Fairway, and Apache remain on course for Suez.
As the incident poses serious risks to multiple supply chains, petrol prices alone could rise due to the ten million barrels of oil being stuck at the canal.
Oil prices rose sharply on Friday due to concerns that it could take weeks to dislodge the container ship, possibly squeezing supplies of crude and refined products.
Brent crude was higher by 0.9%, at $62.49 a barrel by 04:32 GMT, after dropping 3.8%on Thursday. US West Texas Intermediate crude was up by 1.1%, at $59.21 a barrel, after falling by 4.3% a day earlier.
University of Salford Business School logistics expert Jonathan Owens says: “This situation has piled on more problems for beleaguered shipping companies, which were already facing disruption and delays in supplying products to customers due to the unbalanced supply chains, in the wake of the global pandemic.”
“Already there has been small rises for prices of oil on the market, so the longer this goes on we could see short term rises at the fuel pumps and this could knock on into product rise for on-line to compensate for the rising cost of on-line deliveries if the retailers are not willing to take the hit,” he adds.
Owens warns that delays could be even longer and costly if a decision is made to break up the ship, in case no progress is made to unblock the canal.
“If the canal becomes unblocked, many ships that are going towards Europe will move the bottleneck there, because there will be a mass movement of ships all trying to get out of the canal and go in the same direction. Therefore, for a period we will see a state of high congestion at our ports.”
The LNG market issues and the ripple effect of the Suez blockage
As the LNG market faced constraints around the Panama Canal through winter, amid a spike in East Asian demand, cargo re-routes were necessary, but Kpler Research estimates that there is distinctly less optionality for shippers this time around.
The LNG market has already had a taste of what can happen when logistical pinch points are tested to the maximum with East Asia pulling significant quantities of last-minute cargoes into the region, straining the limits of the Panama Canal and forcing shippers to seek alternative routes.
Kpler Research analyst says: “The options for shippers in the immediate aftermath of the incident in the Suez Canal are far more limited. As delays continue, shippers will have to broach the unpalatable decision of whether to make a U-turn and head for the Cape of Good Hope or wait it out in the Red Sea and the Mediterranean.
“Given the considerable increase in voyage duration, it is unlikely that anyone already in-situ will divert. This could cause shippers not already committed to reassess their options, but there would still need to be notice of longer running delays before those decisions were made (it takes just under 24 days via the canal from Ras Tanura to Amsterdam vs 39 days via the Cape).”
The event highlights the relative fragility of the on-water trading system, particularly for those flows for which Suez Canal transits make up a higher percentage of total volumes moved.
Following the increase in LNG cargoes being pulled into Asia from the Atlantic Basin this winter, transits through the canal hit a new high in January 2021 of 3.4 vessels per day, 62% of which were laden.
But with still relatively limited crude flows through the canal, the closure puts pressure on regional markets.
Out of the total 39.2mbd of crude imported by seaborne methods in 2020, just 1.74mbd was moved via the Suez Canal. For this reason, with 4.4% of total flows, there is hope that the global crude market could be able to cope with short-term delays, Kpler Research indicates.
While this vital waterway is blocked, experts warn that up to 10% of the world’s shipping across many industries could be delayed or diverted, depending on the way the blockage is handled.
“There will be no clear-cut product that will be impacted, rather a series of products, from toys and furniture to electrical items, and the canal is a choker and a main shipping supply route. Whatever the result, [they] will cause repercussion for a while in our supply chains,” Owens predicts.
Distinguished engineer at software firm Solace, Tom Fairbairn says: “Supply chains will have to be agile, nimble and flexible to counter problems like these. Overnight, batch-based processing and planning simply won’t cut it. Real-time, fully integrated and digitised supply chains are needed to reduce the impact of events like these to a minimum.”
