Suez Canal blockage is threat to freight rates

Suez Blocked

There are rumours that the efforts to move the Evergreen vessel, Ever Given, which is blocking the Suez Canal, are making progress and that the main channel of the canal could be clear for traffic in a matter of hours.

No statement from the Suez Canal Authority has been made to confirm this, rather they have simply said “the floatation efforts included towing and pushing the grounding vessel using 8 large tugboats; largest of which is BARAKA 1 with a towing power of 160 tonnes” and that preparations are being made to shelter vessels hoping to pass through the canal in the Bitter Lakes.

It appears that the Dutch salvage company Smit Salvage has been engaged to advise on the problem but at present no specialist equipment is entering the Canal other than that normally available to the Suez Canal Authority. There is speculation about how the vessel has become stuck, whether it has run aground or is simply jammed against the channel wall.

The CEO of Boskalis/Smit Salvage, Peter Berdowski, is quoted as saying to Dutch television that the ship could be “beached” and that it might take weeks to move it, possibly involving the removal of part or all of its cargo, however, it is unclear if this just speculation.

The impact of the blockage of the Suez Canal for any length of time would be considerable. The canal has been blocked in the 1970s and although this did affect trade the impact was less than anticipated. Today, however, non-oil traffic through the canal is much greater and it is hard to believe that the movement of cargo into and from Europe would not be badly affected.

There really is no alternative to the Canal in the short-term. Certainly, vessels can be re-routed through the Panama Canal, but it cannot take the largest container vessels and the interruption to trade patterns would be very significant. There is also the option to send ships around the Cape of Good Hope, which would be equally time-consuming. The China-Europe rail and road links do not have the capacity to act as a replacement.

The impact of even a brief closure on container freight rates would be enormous in a market that is already struggling to access capacity and containers. 

The episode is also a reminder of the distinctive risk profile of ultra-large container vessels. They are not just larger ships, they imply quite a distinctive management profile for much of the logistics sector.

Source: Transport Intelligence, March 25, 2021

Author: Thomas Cullen