Suez Canal Container Ship Blockage Threatens to Undermine Global Supply Chains

Suez Canal Container Ship Blockage Threatens to Undermine Global Supply Chains

On March 24, ultra-large container ship MV Ever Given (Evergreen) ran aground at around 07:40 local time and caused all traffic to be blocked off in the Suez Canal — one of the world’s busiest shipping arteries. The accident is already causing considerable impacts on global supply chains and the passage of critical goods, oil, chemicals, grains, and other commodities products worldwide. 

Panamanian-flagged MV Ever Given, a 400-meter long and 59-meter wide container ship, was carrying goods from Yantian, China to Rotterdam, Netherlands before suffering a power outage while transiting in a northerly direction. The Suez Canal Authority (SCA) confirmed that MV Ever Given ran aground diagonally across the single-lane stretch of the southern canal after losing the ability to steer during high winds and a dust storm with winds that reached 40 knots. Due to the size, location, and positioning of the container ship, both northbound and southbound traffic has been blocked. 

The Suez Canal blockage has already had immeasurable impacts on global shipping routes and passage of goods. Around 185 vessels have already been affected — mostly bulk carriers, container ships, and oil or chemical tankers — that were stranded at the Suez Canal waiting to cross. In addition, Maersk, the world’s largest shipping company, reported that four of its vessels remain stuck in the Canal while three others have been delayed waiting to enter the passage. A rough estimate of the economic impacts suggests that the blockage could potentially result in losses of up to USD 400 million (EUR 338.2 million) an hour, with westbound traffic worth around USD 5.1 billion (EUR 4.3 billion) a day and eastbound traffic at approximately USD 4.5 billion (EUR 3.8 billion).

How Quickly can the Blockage be Resolved?

As of March 25 08:00 GMT, all traffic at the Suez Canal continues to remain blocked as ten tug boats struggled to free the 224,000-ton container ship blockade at one of the world’s most vital shipping routes particularly for oil, gas, and chemical sectors. Over the past 24 hours, MV Ever Given has made only minor changes to its position despite efforts to drag it to deeper water and amid a low tide overnight that has slowed efforts to dislodge the massive container ship. Despite the uncertainty posed by the container ship blockage, the SCA claimed that some cargo has been able to move south and that efforts to dislodge MV Ever Given are continuing. 

The timeline behind how quickly the blockage can be resolved remains unclear as the situation is unlikely to be sorted within the next 24-48 hours. If the tug boats are unsuccessful in immediately unclogging the blockade, the crisis could last up to a week. This could have severe consequences on various factors ranging from global oil prices to rising shipping rates due to container vessels being forced to pursue longer alternative routes amid the uncertainty. 

Should the situation remain unresolved, vessels backed up at both ends of the Suez Canal will have a choice to make: wait for the canal to re-open or re-pivot and travel more than 3,000 nautical miles around Europe and South Africa’s Cape of Good Hope. For the former, a delay of up to a week could mean that an extensive amount of time before traffic will return to normal levels. In the case of the latter, it could mean the arrival of cargo may be delayed by about a week. 

Why is the Suez Canal so Important?

Suez Canal is one of the world’s most critical maritime shipping routes and is widely considered a major choke point for global trade. In particular, the canal has served as a vital commodity checkpoint for shipping crude from the Middle East to Europe and North America in both directions as well as Russia to Asia over recent years. From a shipping volume standpoint, roughly 30 percent of the world’s shipping container volumes transit through the route daily and account for around 12 percent of total global trade of all goods. Almost 50 percent of the vessels that passed through the Suez Canal in February were container ships and 39 ships transit the canal daily on average.

The longer the blockage persists, the greater the potential for further disruption. In particular, the Suez Canal plays a major role in the flow of consumer goods from China and South Asia to Europe, crude and refined products from the Persian Gulf and India to Europe, as well as naphtha exports from Europe to Asia. The Asia-Europe route is the third busiest in the world and highly susceptible to further disruptions with almost 16 million TEU carried on the headhaul route in 2020, according to Container Trades Statistics.

For the energy and chemicals sectors, the U.S. alone imports around half a million barrels of crude daily from Saudi Arabia with a part of that going via the Suez Canal. U.S. and European refiners that are reliant on the canal may also face additional challenges as the situation forces them to look for replacement supplies if the blockages are prolonged. Reports have cited that impacted tankers carrying Saudi, Omani, Russian, and U.S. oil are waiting on both ends of the Suez Canal and that around 13 million barrels of crude oil and petroleum product shipments have been backed up.

Congestions at Ports May Worsen

The Suez Canal blockade could further exacerbate excessive congestion at European ports if cargo were to arrive all at once, as well as persisting container shortages in Asia that have led to surging freight rates, should the situation continue to worsen. If the situation were to continue to prevail, it could have an outsized impact and create bottlenecks at European ports as soon as next week, while at the same time risking delays for the return of desperately needed containers in China. 

The unpredictability of the Suez Canal container ship blockage further underscores the importance of having sufficient supply chain visibility and shipment tracking tools to help mitigate the impact of unforeseen disruptions. By using real-time supply chain risk monitoring tools, companies can identify important suppliers that may be impacted for critical goods and components, as well as assess whether definitive actions such as the re-routing of shipments are necessary. 

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