Suez Canal Blockade Reflected Global Shipping Troubles

 

Photo Source: Business Insider

By Naveed Qazi | Editor, GlobeUpFront

Global economy was on its knees, as trade ramifications from Suez Canal started to appear when the trade artery in Egypt was blocked, almost for a week, after a giant container ship, called Ever Given, owned by Japanese carrier Shoei Kisen, ran around on the bank, of the canal, after apparently being deviated by high winds, on 23 March 2021. This scenario reflected the many vulnerabilities of global shipping.

Thirteen percent of global trade had been held up in initial days. Shipping charges also had soared since the blockade. It also inflated some good prices for a short while. The blockage was thought to be holding up $9.6 billion of goods everyday. Some shipping companies were taking a detour via Cape of Good Hope in South Africa, extending their voyages upto twelve days. This resulted in additional time and expense, to already complex global supply chains. Countless retailers, both offline and online, suffered the brunt of the fiasco.

“The blockage in the Suez is not a huge surprise to those of us in the industry,” said Cormac McGarry, a maritime analyst for Control Risks, a global risk consultancy. “We’ve been warning of a situation like this for a long time because container ships are getting so big. There are only a handful of ports in the world that can receive a vessel like the Ever Given.”

That’s why, the bigger the ship, the bigger the risks. In container shipping, margins are tight, and the cost of shipping is enormous. For this reason, having bigger ships make sense for the companies. Ten years ago from now, ships carried around ten thousand containers, but now, ships carry almost a double. Peter Sand, chief analyst at BIMCO – the world’s largest trade body for shipping industry is of an opinion that container ships could grow to 24,000 TEU in future.

In history, Suez Canal was blocked since its completion, more than one hundred fifty years ago. After the 1967 Six Day War, between Israel and several Arab countries, Israel’s occupied Sinai Peninsula, up to the eastern bank of the canal. The waterways were blocked for eight years, trapping fifteen ships, until 1975, when the route was reopened. Amidst the blockage, the crews of these trapped ships founded a yachting club, and watched films on a Bulgarian vessel. A Swede vessel had a pool, too. From 1975 onwards, around twenty-six ships made their way through the Suez Canal. And, by 2019, more and more ships were stuffed with more oil, fruit, car parts, animals, grains, construction equipment, clothing, and basically any other global consumer item. It all amounted to three thousand tons, from a paltry two hundred forty tons in 1975.

The global trading system is far more fragile as it might appear. As shipping flows are vulnerable to bad weather, strong winds, to war and political blockades, a greater reliance on international business with countries far away, increases the likelihood of disruption hitting trade routes.

Global trade has consequently been hitting a new low demand, and increased protectionism, but there is also a weak state of infrastructure, harming international trade. According to Chatham House, “the global shipping industry seems like a cartel. Like all cartels, that is not a very good situation for the global economy. There are literally three or four massive ship container shipping industry companies, controlling most of global trade.” The four largest of such companies control nearly sixty percent of the market between them, reflecting that the global market share is in the hands of few, who could get the ball rolling in their favour whenever they want.  

Billions of people, who depend upon each other, travel in cogs, for the shipping operations, for their bread making – their chore involves everything, from collecting oranges, to machinery. The port workers, and software programmers organise each step in a complex chain. But, ironically, they don’t have formidable backup plans, if anything goes wrong.

In world’s trade gateways, there are a lot of proxy wars going on with vessels as targets, which are essentially persistent attacks on the supply chain itself. An Israeli ship, traveling from Tanzania to India, some time ago, drifted for several hours, before being able to continue its journey. In February 2021, another Israeli container ship was hit by an explosion in the Gulf of Oman. Israeli media reported that Iran was behind the attack. Predictably, Tehran denied the accusations. Also, consider GPS spoofing. In 2017, more than twenty ships in the Black Sea suddenly reported problems with their GPS signals. Russia was likely a culprit, as it managed a form of new electronic warfare directly affecting global trade. Hence, consumers should care about both GPS spoofing and shipping insurance, only because their goods and they, themselves, could be affected.

There also seems to be a case of hijacking in 2019, when Iran’s Revolutionary Guard Corps seized the oil tanker Stena Impero in the Strait of Hormuz. Getting the Stena Impero released required lots of skilled diplomacy. After the Stena Impero incident, insurance rates for ships passing through the Strait of Hormuz skyrocketed. 

Quite recently, Russia’s NotPetya cyber attack against Ukraine brought down a string of corporate giants including Denmark’s A.P. Moller Maersk, the world’s largest container-shipping company. It took the company, which operates nearly six hundred cargo ships, several days of frantic information technology battles to become operational again. While it was down, its ships were immobilised.

The sailors low wage is also one of the reasons, why consumers have goods shipped so cheaply around the world. Today, the world’s ships, employ nearly 1.7 million sailors, primarily staffed by citizens of China, (who mostly work on Chinese ships), the Philippines, Indonesia, Russia, and Ukraine, and India, which is another major country of origin.

Apart from Suez Canal, there are many other trade routes, which could be restricted by accident, or by circumstances, from Strait of Malacca, between Malaysia and Indonesia, to Panama Canal in Latin America, and the South China Sea. The blockage of Suez Canal is just a prelude of what might happen next in international waters.

There are plans to widen the Suez Canal by 30 kilometers in the southern stretch, and about 40m to the east, with a section deepened to 21m, following its blockage. A 10km-long extension of a second lane of the waterway also would be featured in the plan. This would extend the double-lane stretch of the canal to 82km, and allow more vessels to pass through. The expansion will be expected to be completed in two years.

It also turned out that most of the ships that got stuck in the Suez Canal blockade lacked delay insurance. Egyptian authorities had been demanding 550 million US dollars, in compensation from the owner of Ever Given. The Suez Canal Authority had initially demanded about 920 million dollars in compensation. Ever Given contained hundreds and millions of dollars of cargo shelving 18,300 containers. Since it was refloated, the vessel had been held in the canal's Great Bitter Lake, trapping goods of pivotal clients such as IKEA, Lenovo, UK bicycle maker Pearson 1860 and Snuggy UK, which makes wearable blankets.


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