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Editorial: The Ripple Effect

Chennai, 31 March 2021:

Ever Given made headlines following its grounding in one of the key bloodlines of the global trade, namely the Suez Canal. Specifically, 12% of world trade takes place through the Suez Canal, and estimates from Bloomberg indicate that the blockage has halted $9.6 billion worth of traffic a day.

The colossal ship, spanning 400 meters in length and 59 meters in width, ran aground on March 23, at 6 nautical miles from the southern entrance of the canal. At 20,000 TEU capacity, the ship falls into the category of the world’s largest containerships.

Gusting winds of 30 knots and poor visibility are believed to be the likely cause of the grounding, which left the boxship stuck sideways in a narrow point of the waterway.

The position of the ship has blocked the passage of convoys on both sides of the waterway resulting in the build-up of vessels.

It is believed that it would take at least two days to remove the ship and resume shipping in the canal. An external salvage team is also due to be appointed, with reports emerging that Smit salvage experts would be hired for the job.

As the Suez Canal tugs resume efforts to free the ship, which has been partially refloated since Tuesday, the global trade is already feeling the impact. The Suez Canal Authority said in its latest update that the traffic through the canal would be temporarily suspended as well, as activities on refloating the ship are resumed.

As informed, it was possible to allow passage to 13 ships from Port Said within the northern convoy.

Initial estimates show that long tailbacks have been created on the waterway, stopping vessels from passing and causing delays. 

Data from Vessels Value indicates that there are 157 ships waiting in and around the waterway for the convoys to resume.

According to Wood Mackenzie VesselTracker, the largest impact is on container shipping, with the likely outcome being a spike of cargo into the main ports in Europe.

However, Wood Mackenzie estimates that there are a total of 16 laden crude and product oil tankers that are expected to transit the canal delayed by the incident, amounting to 870Kt of crude and 670kt of clean products. 

“These ships are currently in the canal itself or waiting at either the North entrance to the Suez Canal (Port Said Anchorage and Great Bitter Lake Anchorage) or at the Southern Suez Anchorage. There are several vessels which are located to the south of the canal entrance which we believe are scheduled to discharge at various southern Suez ports. Our data suggests that there have been no cargoes diverted to alternative routes such as around the Cape of Good Hope,” Wood Mackenzie principal analyst Mark Williams said.

As a result, oil prices already rose $2 per barrel on the news of the blockage, but stocks of both crude and products are high in the Atlantic basin, Wood Mackenzie vice president Ann-Louise Hittle explained.

She believes a few days of delays in crude or product travelling through the Suez Canal to the west (Europe/Americas) should not have a prolonged impact on the Atlantic basin market.  

“After the canal reopens, the crude market will shift focus towards the April 1 OPEC+ meeting to determine production levels for May,” Hittle added.

“If the blockage is prolonged, given the weakness in European demand for middle distillates and low refinery utilisation rates, oil product trade flows from Europe/Mediterranean to East of Suez will suffer a greater impact, reducing availability of naphtha, petrochemical feedstocks and fuel oil to Asia. This would be supportive for Asia product prices and widen the West-East arb in the near term,” Williams continued.

When it comes to LNG, at least 15 ships initially due to transit the canal on the same day were forced to wait at anchorages. More have arrived since, creating a build-up of vessels close to the Northern and Southern entrances and within the canal itself.

Though the blocking of the Suez Canal hasn’t been much of a worry for Indian shipping companies such as Great Eastern Shipping and Essar Shipping, it is likely to impact Indian trade if the blockage continues beyond the weekend, say experts. We are not impacted directly as all our vessels are around India and in the South East Asia region.

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