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Before grounding the huge container ship Evergreen in the Suez Canal, about 50 ships a day, or about 10% of world trade, sailed through the waterway every day – everything from consumer electronics to food, chemicals, ore, and petroleum.
Now, with the ship It settled sideways in the channelWith the closure of the main trans-ocean highway between Europe and Asia, many of those goods remain idle. It is either waiting to cross the canal or stuck in the port while the owners and shippers decide what to do.
Ultimately, they may have to place a bet on whether the canal will soon reopen or gamble on expensive and time-consuming alternative routes. Lloyd’s List estimates the cost of the waiting game $ 9.6 billion a day.
NPR looks at the implications for the shipping industry and global trade.
What are the alternatives to ships during the closure of the Suez Canal?
Ship owners and operators have a few options, but none of them are particularly good.
The old saying that time is money couldn’t be healthier in the shipping business. For ships already backed up in the canal, if the waterway is not clear to transit soon, a decision will need to be made whether to continue to wait or move to Plan B.
Basil Karatsas, CEO of Karatzas Marine Advisors & Co. says: , A New York-based company: “For the ships already in the Suez Canal, it would only take several days to sail south on the Red Sea and board the shipping lane around Africa.” Consulting in shipping finance and ship brokerage. From there, “Around Africa” – the only practical sea route between Europe and Asia for centuries before the Suez Canal was opened in 1869 – would take another weeks.
“If they start sailing (prematurely) around Africa, it will guarantee them a delay of two to four weeks and several million [dollars] The additional costs for fuel, Karatsas says. ”Instead, the owners and operators of many ships stuck in the canal are likely to simply wait and“ hope for a quick solution. ”
To get an idea of just a shortcut that might get lost, commodity analysts Kpler Say That for a ship with an average of 12 knots (14 mph), Suez to Amsterdam would take 13 days across the canal. It takes 41 days around the Cape of Good Hope.
Karatzas says the situation may become clearer in the next week, but if Ever Given is likely to require a massive liberalization process, shippers will have to make some difficult and costly decisions. The same goes for ships that have not yet left port, although the cost in time and money for them will not be great.
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Another possible option is to pass through the Panama Canal through the Pacific Ocean. But many of today’s largest merchant ships, such as the 1,300-foot Ever Geffen, are too large to cross the Panama Canal.
Jonathan Roach, a container market analyst at Braemar ACM Shipbroking, said in a recent letter to clients that the route through the Cape of Good Hope is the most likely detour, even for ships that could pass through the Panama Canal.
Last year, due to overcapacity and lower fuel prices, Some shippers have done just that – Choosing the Africa route to avoid the Suez Canal transit fees.
There is another possibility, but it also has severe limitations. A shorter route through the North Pole is alternately known as the Northeast Passage, also known as the North Sea RoadOr NSR Promoted by Russia.
The number of vessels using NSR increased to Several hundreds every yearThanks in part to global warming that has reduced polar ice. However, traffic there is still only a fraction of what passes through Suez.
The North Sea route is still impractical by most shipping companies. For example, in 2018, Maersk, the world’s largest container line, Sent one of its ships via NSRHowever, the company confirmed that it did not see the road as a “substitute for our usual methods” and that the trip was merely “an experiment to explore an unknown route for shipping containers and collecting scientific data.”
Finally, it should be noted that the prolonged closure of the Suez Canal is not unprecedented. The waterway was closed for eight years, starting in 1967, after the outbreak of war between Egypt and Israel. As a result, ships were forced to divert around the tip of Africa.
As of Friday, Kpler told NPR that two Liquefied Natural Gas (LNG) tankers bound for Europe have already diverted and that many other ships carrying gasoline and diesel appear to have done so as well.
How will the prolonged shutdown of the Suez Canal affect the supply chain?
Jonathan Gould, vice president of supply chain and customs policy at the National Federation of Retail Trade, said global supply chains, which have already been significantly disrupted by the coronavirus pandemic, could come under further pressure due to the prolonged shutdown of the Suez Canal.
“That’s just one additional challenge to supply chain operations that we’re seeing across the board,” says Gold. ”[We are] Already experienced congestion and other things affecting the supply chain. That is another thing that adds to that. “
The biggest impact will be felt in the European market, which relies heavily on cross-channel transfers, but given the interconnected nature of global manufacturing and trade, it is also likely that there will be an indirect impact on the United States.
Says Jennifer Bisgley, expert in global supply chain resilience and founder and CEO Interos Inc. “Last year, I had a big focus alert call for the physical supply chain from COVID and then you had this on top of it.”
Bisceglie says it is time for companies to consider “more variation.” [supply hubs] Instead of laying all of our eggs on one cargo ship. ”
Maersk told NPR on Friday that it was too early to commit to rerouting any of its mammoth global container fleet. The Copenhagen-based company, prof statement, Although it is “out of our control, we apologize for the inconvenience this incident may cause to your company and important shipments.”
”[We] I recommend that you contact your local sales representative for dialogues and quotes about alternative solutions, such as air and rail transportation for urgent goods that are still in origin or elsewhere. ”
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Does the long close mean higher prices?
Like anything else about the position, it depends on how long it will last. A week-long delay of a few hundred ships in Suez might have little effect on consumers, but a prolonged delay could increase the cost of shipping, complicate manufacturing, and ultimately lead to higher prices.
”[A] John Cartsonas of Breakwave Advisors, which specializes in asset management and advisory services to the shipping and commodity industries, says the few days may not have a measurable impact. But if it takes weeks to resolve, the disruptions could potentially lead to higher shipping rates.
Operating costs will also rise dramatically. More days at sea means more fuel burned.
“Large container ships, super jumbo container ships, can burn 100-150 tons of fuel per day,” Roach tells NPR.
That’s $ 80,000 a day in fuel and an extra 10 days travel time – to and from Asia. “So, you are looking at the better part of a million dollars with your operating costs. So you’ve got a million dollars and a million dollars out,” he says.
In his letter to clients, Roach also indicated that problems in the Suez Canal could disrupt container flow. The trade imbalance between Europe and Asia means that filled containers heading west often return empty to ports in the east for refilling. “If blank stocks dwindle in Asia, there is a short-term possibility of a price increase,” Roach writes.
Insurance is another consideration.
Richard Mead, managing editor of Lloyd’s List, says a prolonged ban in the Suez Canal will have financial consequences “for the owners, but then moving to insurance companies.”
“It is clear that this will lead to a significant increase in insurance premiums,” he adds.
Generally speaking, though, Says Joanna Konings, chief economist at ING Bloomberg It is “relatively optimistic” about the impacts on trade. But it does not exclude “an inflationary shock that could affect consumers directly”.
Mohamed Elshahed / AP
Will gas prices rise?
Shipping rates for petroleum products have nearly doubled since Evergiven was founded on Tuesday, according to Reuters.
Although oil prices may also feel some upward pressure in the wake of Ever Given, Its increase has so far been moderated by news of more COVID-19 lockdowns in Europe which will likely continue to depress demand.
What does that mean at the pump?
“If the Suez Canal remains closed for more than a few more days or more than a week, we are likely to witness some disruptions in oil flows between the Middle East and Europe that could affect prices globally,” says Patrick de Haan, head of the petroleum division. Analysis in GasBuddy.
“But it shouldn’t impede the flow of oil to North America,” says de Haan. “In the worst case, if the problem persists, if oil prices see a sustained rise, the blockage may have a small and limited effect on gas prices, probably no more than a few cents a gallon on average.”