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What the ship in the Suez Canal means for global trade – global issues – Journal Globe

What the ship in the Suez Canal means for global trade – global issues


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Suez Canal Authority.
  • Inter Press service

Bulldozers, diggers and tugboats are working frantically to free the ship, but the process can take weeks. According to the head of one of the rescue teams. About 10% of global maritime trade passes through the canal, allowing ships to shorten the voyage between Europe or the east coast of America and Asia by thousands of kilometers, saving a week or more of travel time.

About 50 ships pass through the canal daily under normal conditions, roughly evenly divided between dry bulk carriers, container carriers (such as Ever Given) and tankers. As the blockage continues, so do some shipping lines Taking into account the Diversion of ships around Africa instead of waiting for them to be removed.

This event comes on top of the COVID-19 pandemic, and it has highlighted the fragility of global supply chains – and is likely to accelerate changes in the global economy that were already underway.

Good news for oil tankers

The blockage disrupts the important energy trade, but perhaps not significantly due to alternative methods and sources in the event the blockage continues for a long time.

About 600,000 barrels of crude oil are shipped from the Middle East to Europe and the United States via the Suez Canal every dayWhile about 850,000 barrels per day are shipped from the Atlantic basin to Asia, too, via the Suez Canal. While the Sumed pipeline, which runs parallel to the Suez Canal, will enable some crude oil to continue flowing between the Mediterranean and the Red Sea, European and North American refiners will want to replace Middle Eastern oil with oil from sources it usually does not. It passes through the channel. Likewise, Asian refiners will want to replace crude oil from the North Sea.

Interest in shipping crude oil around the Cape of Good Hope is growing, adding seven to ten days to shipping time from the Middle East to Europe and North America, increasing the demand for very large crude tankers.

While the rerouting of crude oil is unlikely to have a significant impact on oil prices in general, as inventory levels are currently high, this comes at an appropriate moment for owners of crude oil tankers, as the rental rates of these vessels have been at rock bottom due to lower demand. Global oil crisis and the implications of epidemic shutdowns. Owners of tankers that carry refined oil or LNG can expect a similar increase in demand for their vessels and hence rental rates.

A reminder of supply chain fragility

For commodities like oil, liquefied natural gas, coal, and iron ore, there is global demand and global supplies that must balance. However, one source can often be substituted for another. This means that the Suez Canal blockage will affect the spot price of goods domestically and the rental rates of ships carrying them, but the trade will continue.

It’s a different story for the products that container ships like Ever Given carry. These products tend to be highly differentiated and difficult to replace. The closure of the Suez Canal will undoubtedly lead to shortages of certain products around the world, either because they do not reach their destinations on time or because of the lack of inputs or key components of the manufacturers.

The shortfall will remind manufacturers of the fragility of global supply chains, and they may consider how to reduce their dependence on specific sources, particularly those that are remote and that rely on container shipping.

Global supply chains are already shrinking

Technological advances associated with digitization and automation are making manufacturers less dependent on the large skilled workforce found only in certain parts of the world. Production has become more mobile and thus is able to locate closer to the markets in which it is offered.

More mobile production, combined with the continual miniaturization of some products (for example, flat screen televisions are getting flatter) and advances in digitization of things like books and directories are gradually shrinking global supply chains and reducing the mileage, measured in value terms Or size. Major disruptions such as the COVID-19 pandemic and the blockage of the Suez Canal can only accelerate this development.

This trend predates the pandemic and the current stalemate. It can be seen in a number called the global maritime trade-to-GDP multiplier, which measures how much global economic activity depends on shipping.

After the global financial crisis of 2008-09, this number Decreased less than 1% in the middle. This tells us that a 1% increase in global GDP is now leading to less than 1% increase in global maritime trade.

Who will pay the price?

The cost of the outage caused by the blockage of the Suez Canal will weigh on the insurance companies of Evergiven. The vessel is owned by Japan’s Choi Kisen Kaisha and is leased to the Taiwanese Evergreen Line. Chassis and machinery insured In the Japanese marine insurance market, at the moment the damage to the vessel appears to be minimal.

The main costs are the Suez Canal Authority losing profits while the canal is closed to traffic, and the losses incurred by cargo owners on the many ships stopped by the blockage. Depending on how long the blockage lasts, it could lead to huge insurance claims. Third-party claims are covered by the London Protection and Compensation Club, which is reinsured by the International Group of P&I Clubs.

However, in the long run, blockage may be a good thing. If another push is made to shorten supply chains, the benefits to the global economy and the environment will surely outweigh the cost to insurers.

Conversation

Michael BellProfessor of Ports and Maritime Logistics, University of Sydney

This article was republished from Conversation Under a Creative Commons license. Read the The original article.

© Inter Press Service (2021) – All rights reservedOriginal source: Inter Press Service

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