The impact of the Suez Canal blockage: What it means for the global economy and sourcing

The ship has been un-wedged! After nearly a week stuck in the Suez Canal, a fleet of tug boats, a digger, and a crack team of salvage experts refloated the monstrous Ever Given container ship.

Suez Canal blockage impact
TK Wang, Founder & Director @ Epic Sourcing
April 11, 2021

The ship has been un-wedged! After nearly a week stuck in the Suez Canal, a fleet of tug boats, a digger, and a crack team of salvage experts refloated the monstrous Ever Given container ship.

It might be free, but it’s hardly business as usual. The disruption is set to reverberate around the world for many months, and it’s a hangover that looks set to find its way to New Zealand. As Covid highlighted, global trade and infrastructure is being pushed to the limit and disruptions can have a domino effect that reaches to all corners of the globe. 

In today’s Epic news, we recap the Suez situation and look at the economic impact.


What happened? 

At 400m long, the Ever Given is one of the largest container ships ever built. So big in fact that it could block up the Suez Canal. Which it did. High winds and a sandstorm have been blamed for the mishap, although there is speculation that human error may have played a part. The result was a week-long and very expensive traffic jam that ran up a bill estimated to be in the Billions.



Thanks to its extreme meme-ability, and the public’s fascination with stories that involve someone messing up really bad at work, just about everyone on earth heard about it. There was something very human and almost comedic about the situation. All you had to do was go straight, man! Poor bugger. 



To a casual observer it looked like an easy fix. Back her out, turn her around and away we go. Unfortunately, the ship had dug itself well into the bank and freeing it proved to be a very complex and technical operation. Nevertheless, they did it.


Why was it such a big deal? 

As far as shipping is concerned, the Suez is the world’s greatest man-made shortcut. Around 12% of global trade makes its way through the canal, which is the shortest sea route between Asia and Europe. Blocking the canal stopped the flow of an estimated US$12 billion in goods. Cars, shoes, beers (beers!), oil, and lots of other important stuff got stuck at the mouth of the canal on over 150 ships.


Impact

So, what’s the damage and how will New Zealand be affected? 

Delays are likely to be seen for everything from shoes and cars, to gym equipment, electronics and food. The canal is a particularly important route for the transport of oil and gas from the Middle East to Europe, so energy markets could also be affected.

The most immediate effect though has been on shipping rates. As the blockage further squeezed an already stretched global supply chain, spot freight rates began to rise quickly. Shipping rates had nearly doubled by the time the boat was freed, and they look set to continue to rise in the coming weeks and months.

As the backlog gets cleared through the Suez, congestion at major ports throughout Europe is also likely to occur. Ships may find they have nowhere to dock and unload their cargo. It’s another layer or stress on a system that has been severely tested over the last year.


New Zealand

News of the Seuz was met with understandable trepidation from importers and exporters in New Zealand. Fresh off a disastrous year (thanks Covid), the business community knows well how international events often have a domino effect that can reach even these far shores.  

The New Zealand Council of Cargo Owners confirmed that New Zealand containers had been caught up in the chaos, but they didn’t elaborate on which industries have been affected.

Although most consumer goods that pass through the Suez Canal are destined for China or Europe, it’s very likely that raw materials were destined for products that would eventually be sent to New Zealand. Consumers here aren’t going to find empty shelves at their favourite stores, but delays could mean specific products aren’t in stock.

From a sourcing standpoint, importers are again staring down the barrel of increased shipping rates. Here at Epic we are already seeing an increase in shipping rates, but there is hope that things will ease now that the boat has been freed.

So, there you have it. Some good news, some not very good news. The Suez canal catastrophe showed once again how fragile global trade is, but it also showed that in times of trouble, humanity can pull together to create really amazing memes.


Cheers!

TK

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