The cargo ship blocking the Suez Canal keeps traffic carrying goods worth about $ 10 billion every day, so a quick clean-up of the market is key to limiting the economic consequences.
Efforts continued Thursday to evacuate the storyteller ship Ever Ever and restore traffic to the critical artificial waterway that connects the Mediterranean to the Red Sea and provides a shipping shortcut between Europe and Asia.
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WHAT VITAL IS THE CHANNEL TO SEND?
Approximately 10% of all world trade flows through the 120-mile-long (193-kilometer-long) canal, which allows tanks and container vessels to avoid a long voyage around the southern tip of Africa.
The iconic shipping newspaper Lloyd’s List estimates that $ 9.6 billion worth of goods pass through every day. Lloyd’s says approximately $ 5.1 billion of this traffic goes west and $ 4.5 billion east.
Approximately a quarter of this traffic is done on container ships, such as the one currently excavated in a side wall of the canal. Lloyd’s says more than 50 ships cross the canal in an average day, carrying 1.2 trillion tons of cargo.
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WHAT EFFECT WILL IT HAVE ON SUPPLY CHAINS?
When it comes to shipping goods from Asia to Europe, there are virtually no alternatives like rail or truck transportation, said Sharat Ganapati, a professor of economics at Georgetown University. The blockade will delay a number of parts and raw materials for European products, such as India’s cotton for clothing, Middle East oil for plastics and China’s auto parts, he said. .
“The fact that you have the most fundamental node in the commercial network that is blocked will have significant effects on welfare around the world,” said Woan Foong Wong, a professor of economics at the University of Oregon.
There will be less direct impact in the United States, which receives most shipments from Asia to the west coast. However, imports from Europe may be delayed and the blockade will prevent empty transport containers from being returned to Asia, which will add to the lack of containers caused by rising demand for consumer goods. consumption during the pandemic.
“If you have a hit on a site, this will leak through the system,” Ganapati said. “It will take a while for things not to stick.”
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IS THE SUPPLY CHAIN IN PROBLEM?
The situation in Suez could aggravate problems for a supply chain that was already under pressure from the pandemic and an increase in purchases.
Virus-related restrictions have trapped the crews of merchant ships. Congested ports have caused container ships to anchor off the coast of California, unable to dock and unload their goods. The shortage of semiconductors and rare earth elements has affected carmakers and other consumer products.
“We have a lot of things that indicate a vulnerable supply chain and at risk of disruption, and now we’re putting something more on top,” said Julie Swann, a logistics expert at North Carolina State University.
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HOW WILL CONSUMERS BE AFFECTED?
U.S. consumers may have some impact if shipments are interrupted for more than a few days. Finished products from Asia to the United States go over the Pacific. However, some components of products that are assembled in Europe and shipped to the US could be delayed with channel closure.
Mark Zandi, chief economist at Moody’s Analytics, said blocking the channel is unlikely to have a big impact on U.S. or global economies unless it lasts for weeks or months.
It may raise oil prices, “but we’re not talking about dollars a barrel, we’re talking pennies a barrel,” Zandi said.
Zandi said the German economy could suffer if the blockade delays the shipment of auto parts to the company’s major carmakers.
And Spain, Italy and France could see higher gas prices because they depend on oil shipments across the canal, Ganapati said.
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WHAT ABOUT OIL SHIPMENTS?
According to Lloyd’s, about 1.9 million barrels of oil a day pass through the canal. That is, about 7% of all marine oil. The closure could affect oil and natural gas shipments from the Middle East to Europe. S&P Global Platts Analytics said approximately 1 million barrels of crude oil and 1.4 million barrels of gasoline and other refined products flow from the Middle East and North Asia through the canal to Europe in the middle of the day.
Jim Burkhard, who is leading the crude oil research on IHS Markit, said the impact on the global oil market will be limited if the canal is cleared soon. Energy demand is still weak due to the pandemic, and the Sumed pipeline has an unused capacity to move oil around the canal, from one end near Alexandria, Egypt, to a terminal near the Red Sea.
“If this lasts a month, there are other options: you can sail through Africa. Of course, that would come at a cost, “Burkhard said.” If this ship is moved next week, it will be a footnote in terms of the oil market. “
The international benchmark crude price rose after the lockout, but prices fell on Thursday. Analysts attributed the fall in price to the report of a large industrial group on large US inventories and are concerned that pandemic-related closures in Europe will further affect energy demand, which exceeds the concern for the trapped ship.
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CAN OIL-RELATED PRODUCTS BE SLOW?
Shipments of refined petroleum products to Europe, such as gasoline and aircraft fuel, also pass through the canal and will be delayed. Burkhard said refineries in Europe could be pushed to temporarily increase production to resume operations, Burkhard said.
According to research companies, oil tankers using Suez carry 8% to 10% of the world’s liquefied natural gas. Lucas Schmitt, an analyst at Wood Mackenzie, said there were only a few LNG shipments near the canal when the blockage occurred.
“We don’t expect big bottlenecks unless the situation gets longer,” Schmitt said. He added that the timing of the incident – it is in the spring, when LNG demand normally decreases – means it will have less of an impact on prices than recent delays in the Panama Canal. These delays led to an increase in LNG shipping rates, according to data from S&P Global Platts Analytics.