We all make mistakes, but now someone’s mistake is visible from space. One of the world’s largest container ships, Ever Given, was stuck in the Suez Canal, which carries out 13 percent of global maritime trade. Up to March 28, the blockage affected over 200 boats from accessing the canal, and around thirty of them were massive container ships like the Ever Given. Although the ship was freed on the morning of April 29 and traffic is expected to resume very soon, this blockade will likely create a butterfly effect that affects the global market.
First, crude oil prices might experience a rise. According to Egyptian media, around 30 percent of the maritime oil trade depends on the Suez Canal. Among that percentage, European oil was affected the most. Europe exports around 550,000 barrels of oil a day to Asian consumers and around 520,000 barrels of them were transported through the Canal. The blockade has cut off one of the most important crude oil transportation networks, and the crude oil price has increased around 6 percent since March 24.
Other than oil, the blockage might also increase the price of daily necessities such as electronics, coffee, and toilet paper. Italian media reports have said that because the Canal has two-way traffic, European companies cannot receive consumer goods, materials, and parts from their outsourced factories in Asia, and empty containers cannot travel back to Asia to reload. It is estimated that around $400 million USD are lost for every hour of the blockade. It has already caused some of the consumer goods in China to experience a price rise because the supply continues to go down, yet the demand remains high.
Furthermore, the blockade puts small exporting businesses in danger. In Yiwu, China, one of the biggest manufacturing cities in Asia, a typical 40-foot container cost around $2,000 to go from China to Hamburg, Germany before the pandemic. Now, it costs around $7,400. With the Canal only now resuming travel and the priority given to ships that had already been waiting around the entrance, most of the exporters cannot afford to wait and choose to ship by railway. In turn, costs skyrocket even more. Small exporters must expect a high sales return to make a profit, and overstocked consumer goods would harm their financial metrics. However, the price to export now is virtually unaffordable. It is a lose-lose situation for small exporting businesses.
Some argue that air freight is a mature business, and it can take some pressure off of the global supply chain and allow the traffic to ease. Yet given the nature of the size of containers, it may not be feasible. For example, in order to transfer the 20,000 containers that are on Ever Given, it would require about 2,500 Boeing 747 freighters. In comparison, DHL has about 250, and FedEx has 691.
Global maritime trade will need time to go back to normal, estimated to be about a week. While Ever Given’s blunder may have been amusing to many, it is also a significant setback for markets and businesses that have already faced challenges in the pandemic.
Comments