Ever Given, the massive container ship has given some sleepless nights to the already tired and exhausted shipping stakeholders and the container fiasco affecting global trade in the last year or so.

The blockage has forced container vessels to weigh alternative routing and thus, face massive additional costs and transit times in the effort to voyage around Africa.

Already 2 LNG tankers loaded in the US bound for Asia already appeared to have changed their course in the mid-Atlantic because of the blockage, and thus, are heading around Africa to avoid chartering the course of Suez in Egypt. Further, APMM A/S and Hapag-Lloyd AG have already started contemplating sending ships around the same route as well. In addition, customers of Torm A/S, a Danish company which owns tankers, have already started asking about the cost of diversions which would have to borne.

These are not the best of news or the best of times for an already pandemic struck global shipping trade. The blockage of the canal will definitely send ripple effects across the global maritime trade. We must not forget that the vessels which may be affected are carrying everything from finished goods to energy and commodity items.

The article mentioned and I quote –

““Regarding the possible alternatives, we are looking at all of them, including the Cape of Good Hope but also many others, for example air solutions for critical and time-sensitive cargo,” Maersk said in a statement. “No concrete decision has been taken yet. It will depend on how long the Suez Canal remains impassable.””

This is not all. This bottleneck created by Ever Given threatens to unearth a scenario of even higher costs for the shipping carriers, for importers, and ultimately, for the consumers. A definite cause of concern in terms of an economic impact possible of the incident will be the effects on supplies for European companies including car companies to retailers depending on flow of Asian Imports.

The article further mentioned and I quote –

““Even if the situation is resolved within the next 48 hours, port congestion and further delays to an already constrained supply chain is inevitable,” said Daniel Harlid, a Moody’s analyst. That’s bad because European manufacturers including automakers don’t stockpile parts, he said, adding that freight rates “will also most likely increase or at least stop decreasing from their currently very high levels,” he said.”

Additionally, the German shipping carrier Hapag-Lloyd has gone on record to state that it is closely following the implication on the services. They say and I quote – “ We are presently looking into possible vessel diversions around Cape of Good Hope.”

The article also mentioned and I quote –

“For the container lines that haul about 80% of global merchandise trade, a prolonged bottleneck between Europe and Asia risks throwing off ship schedules set months in advance so importers can plan their purchases, manage inventories and keep store shelves stocked or production lines running.”

For every incremental day container carriers have to wait adds more salt to the wounds. Vessels arriving days beyond their scheduled arrivals means they can’t be unloaded and reloaded as per schedule on the return legs of their scheduled sailings. This would mean carriers would/may have to cancel trips; thus, capacities may be strained further and freight rates pushed further.

Let us look at some numbers in perspective. The article mentioned and I quote –

“Rerouting around South Africa’s Cape of Good Hope would add 6,000 miles to the journey and something like $300,000 in fuel costs for a supertanker delivering Middle East oil to Europe.”

Shipbrokers further report that oil traders have started hiring tankers for “just-in-case” options in order for sailing around Africa if the blockage persists.

The article further mentioned and I quote –

“Rates to charter oil tankers in some regions have climbed higher since the blockage first appeared. Suezmax vessels, which typically haul 1 million barrels through the canal, are now fetching about $17,000 a day, the most since June 2020. If ships are forced to sail around the southern tip of Africa, that will boost rates as journey times increase.”

Also mentioned in the article and I quote –

“The canal is currently holding up about 2 million barrels a day of oil flows, according to Braemar estimates.”

The congestion has also not spared bulk carriers carrying everything from wheat to iron ore. The queue of bulk vessels is just about 40 ships, according to an analyst at trade group BIMCO.

The Current Situation

As per the latest situation as per an update from Maersk lines as on Mar 28, 2021 –

“The Suez Canal passage continues to be blocked in both directions. Whilst efforts continue to dislodge the container ship operated by Evergreen Marine, numbers show that over 300 ships are now waiting at anchorage to pass through the canal. There is a steady inflow of vessels reaching the canal and the effects of the redirected vessels from global carriers is not yet reflected in the queue. Currently we (Maersk and partners) have three vessels stuck in the canal and 27 vessels waiting to enter the canal, with two more expected to reach the blockage today.”

(as adapted from https://www.maersk.com/news/articles/2021/03/24/vessel-blockage-in-the-suez-canal)

Now these incidents are something that companies cannot actually plan for in advance. A definite after effect would be to ensure that companies can actually relook at their inventories going forward. But again, this would surely have an impact on costs for these companies. Higher inventories would mean more costs of storing, holding, and carrying inventories and what about the cost of time. Some items in the inventories may be perishable and may come with an expiry date. They can’t be stored for long but what about fulfilling customer orders. These are some considerations that the importers and exporters would need to rethink and thus, come up with optimum inventory and shipping decisions. Till then, it would be an interesting exercise in addition to the already existing question of making Supply Chains Resilient, as has been put forth by the pandemic already….