3 Effects On The Logistics Industry Of The Blocked Suez Canal

The blockage of the Suez Canal by a grounded container ship will likely add delays and extra costs to an already pressured logistics industry. 

The massive container ship Ever Given has been stuck in the Suez Canal for three days, halting billions of dollars in trade as vessels pile up at both ends of the waterway.

More than 150 ships are waiting to pass through the 120 mile canal, according to estimates from research firm StoneX.

The enormous cargo carrier is more than 1,300 feet long and about 193 feet wide. It weighs more than 200,000 tons. One end of the ship was wedged into one side of the canal and the other stretched nearly to the other bank. Egypt’s Suez Canal Authority blamed the incident on low visibility from a sandstorm.

This situation further dampens current ocean shipping market conditions, which, over, the course of the pandemic have dealt with tight capacity, escalating rates for shippers, and a container imbalance, among other issues. 

About 12% of world trade by volume passes through the canal, including large volumes of crude oil and natural gas. Not only do tankers travel north from Persian Gulf countries to Europe, many vessels carrying Russian energy resources travel south through the canal bound for destinations in Asia.. Each day of blockage disrupts more than $9 billion worth of goods, according to The Associated Press, citing estimates from Lloyd’s List.

The passage is a particular choke point for the energy industry, with about one-tenth of the world’s seaborne oil trade flowing through it and the associated Sumed—or Suez-Mediterranean—pipeline in 2018, according to the U.S. Energy Information Administration.

Oil prices jumped about 6% on Wednesday with West Texas Intermediate crude futures and Brent crude futures posting their best day since November. But by Thursday the contracts were back in the red because of demand concerns amid lockdowns in Europe.

Ships have backed up at both ends of the Suez Canal, according to data from ship tracking sites. A delay of a few days would mean an extensive amount of time before traffic returns to normal.

Companies in affected industries, such as energy and logistics, and government bodies are racing to gather information on the situation and gauge the likely damage.

Shipping companies have not yet accounted for the possible impact of the Suez blockage in their rates. But the incident could stretch logistics providers even thinner and destabilize the shipping market.

How long it takes for this situation to be resolved is unclear, at this point. But The New York Times reported that if the Ever Green’s extraction from the Suez Canal goes on, it could have various effects on global trade.

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