Exactly at the worst possible time. Ripple effects to be felt for months.
By Wolf Richter for WOLF STREET.
Today is Thursday, and the Suez Canal is still blocked by one of the largest container carriers in the world. The last thing the tangled up and strained supply chains needed amid a historic surge in demand for durable goods, and component shortages that have led to numerous shutdowns of assembly plants, was a traffic jam at both ends of one of the world’s most important shipping choke points. But that’s what manufacturers were served up when the Ever Given got stuck in a narrow part of the Suez Canal where about 30% of the world’s ocean container volume transits. Image by Airbus Space, this morning:
The Ever Given in all its beauty. Owned by Japan’s Shoei Kisen, operated by Taiwan-based Evergreen Group, and registered in Panama, it has a capacity of 20,000 TEU or Twenty-foot Equivalent Units.
On Tuesday at around 7:45 a.m. local time (Monday night in the US), the Ever Given got stuck in high winds, sailing northbound through the Suez Canal on its way from China to Rotterdam. And it is still stuck, despite all-out efforts to refloat the ship, blocking traffic in both directions. The estimates as when it could be moved out of the way range all over the place, from days to weeks, and might have to include partially unloading the ship.
About 19,300 vessels passed through the Suez Canal in the fiscal year 2020, or roughly 52 per day, according to the Suez Canal Authority. And they’re now piling up at both ends of the canal, and are stuck in the Great Bitter Lake in the middle.
This image via Maritime Traffic, as of Thursday 10 a.m. EST, shows the location of the Ever Given, surrounded by tugs. A cargo vessel that was part of the same convoy is blocked south of it. In the Gulf of Suez, there are dozens of vessels balled up waiting to sail northbound through the canal (red dots = tankers; green dots = cargo vessels):
In the Great Bitter Lake, about a quarter of the way into the 120-mile-long Suez Canal from the Gulf of Suez, about three dozen ships are blocked and waiting to sail south (red dots = tankers; green dots = cargo ships; image via Maritime Traffic):
In the Port Said and the Mediterranean Sea, a bunch more ships are balled up waiting to sail south toward Asia (red dots = tankers; green dots = cargo ships):
In total, there are about 165 ships (according to Lloyd’s) or 185 ships (according to Bloomberg) blocked at the Suez Canal, including 35 container carriers, 32 general cargo carriers, 40 bulk carriers, 17 crude oil tankers, 34 chemical and other products tankers, 10 LPG tankers, and so on. In addition, over 100 ships have signaled the Suez Canal as their next destination.
The Ever Given is stuck in the part of the Suez Canal that has only one lane. Ships travel in convoys in one direction at a time. In the northern part of the canal, from the Great Bitter Lake toward the Mediterranean, a second lane has been built. But where the Ever Given got stuck, it is blocking traffic in both directions.
With more ships heading toward passage through the Suez Canal, and with the traffic jam continuing to build, it will take a while even after the Ever Given has been refloated and sent on its way before the traffic jam is cleared.
There is an alternative route to avoid the Suez Canal, around South Africa’s Cape of Good Hope, and this is now being considered, but sailings may take a week or two longer, which would further add to the delays and costs in the already tangled up and strained global supply chains.
This snarl-up of container ships comes amid a container shortage and a ship shortage as container ships are already waiting to enter backlogged ports, particularly US ports. These port backlogs tie up ships and containers, and the whole flow has been interrupted.
The concern is over containers and container ships and supply chains. The Suez Canal serves routes from Asia to Europe and doesn’t directly impact freight from Asia to the US. But supply chains are complex and global, and the ripple effects will drag out for months.
For example, if a German manufacturer cannot get the parts from China that are stuck on a container carrier in the Gulf of Suez to produce its automotive components for export to US assembly plants, then the US assembly plants cannot manufacture the vehicles. It just takes one component in short supply to shut down production at an entire assembly plant.
Auto assembly plants in the US, and globally, were already hard hit by the semiconductor shortage going into February, when the winter storm in the US temporarily shut down four semiconductor plants in Austin, TX, which then added to the semiconductor shortage. The winter storm also shut down and damaged the Texas petrochemical industry, which then triggered a plastics shortage and surging prices.
Numerous auto plants in the US have already halted production or eliminated entire shifts, citing shortages of components that contain semiconductors, and some have cited a shortage of plastics. These conditions have made a mess of the auto industry’s vaunted just-in-time inventory system.
Similar strains are affecting other manufacturers in the US and globally. And the Suez Canal blockage will add to these problems over the coming months.
In terms of crude oil, it’s less of a fiasco at the moment: 10 tankers carrying 13 million barrels of crude are affected by the blockage, according to Bloomberg. But the world is still trying to whittle down a global oil glut, and oil prices, after a knee-jerk bounce yesterday, are down sharply today, with WTI currently down 5.5%, at $57.80 a barrel.
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