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Yahoo Finance: The Suez Ship Has Sailed, but Here’s Why There Might Be a Few Problems Left in Its Wake

Source: Javier E. David, Yahoo Finance

The Ever Given has finally been dislodged from the Suez Canal, but that doesn’t mean it’s smooth sailing just yet for some consumers and companies affected by the delay.

On Monday, the gargantuan cargo ship that found itself marooned in one of the world’s busiest waterways — and mesmerized social media for days — was able to right itself through a combination of nature and engineering ingenuity. Because the incident was resolved in just under a week, the impact on the global economy — which could have included price inflation on certain exports, higher energy costs and costlier shipping — is seen as marginal.

However, in the short term, European and Asian retailers will still feel the impact. The Ever Given’s predicament left an estimated 370 fully loaded ships carrying nearly $10 billion in goods idling in its wake, and it will take an extended period of time to clear that backlog. Some ships could be forced to circumnavigate Africa, which could add anywhere from 10 to 15 days to their original journey time, according to Goldman Sachs.

“Traffic will be organized based on priority and waiting times already accrued by different vessels,” explained Ayham Kamel, Eurasia Group’s practice head for Middle East & North Africa.

“It will still take weeks to clear the backlog and bring back shipments closer to normal levels. Some vessels that were redirected along the Cape of Good Hope at the southern end of Africa will also now take longer to reach their destinations,” he wrote, adding that the Ever Given incident underscored how vital the canal is to the global trade system.

Thousands of vessels like the Ever Given transport around 60% of seaborne trade, which translates to over $4 trillion worth of goods annually, according to data from the World Shipping Council (WSC). And while some of those vessels can find alternative routes, none is shorter than the Suez, which cuts travel time by as much as 43% for ships crossing the strait.

‘Longer-term lessons’

The picture is complicated by a global supply chain that’s grappling with a spike in demand, and will be most acutely felt in Europe and Asia, analysts say. As the world recovers from the shock of COVID-19, ports around the world have been swamped by imports and exports. Backlogs from the Suez Canal traffic jam is likely to lengthen the time that retailers — and by extension consumers — have to wait for their orders.

Congestion in Asian and European ports may get worse amid “a wave of new arrivals and the need to rapidly move products onward from ports,” wrote Chris Rogers, a supply chain analyst at S&P Global Market Intelligence, in an analysis on Monday.

“Manufacturing and retail inventory patterns already disrupted by the pandemic may also face shortages further down the line. Indeed, Maersk has indicated as of March 27 that the closure causes ‘further disruptions and backlogs in global shipping that could take months to unravel,'” Rogers added.

According to economists at Goldman Sachs, the Suez traffic jam could mean that Asia-bound shipments that would have arrived by late April may not arrive until May, primarily because some delayed vessels were either forced to wait for the Ever Given to be dislodged, or because they decided to use the route around the Cape of Good Hope instead.

“This would reduce measured Asian imports in April, other things equal,” the firm said, implying a $20 billion hit to regional imports per week, or around 4% of Asia’s monthly imports.

“The impact on Asian exports should be low if the blockage is resolved shortly,” Goldman wrote, adding that the eventual impact would depend “greatly on the duration of the blockage, industry-specific inventory levels, and potential alternative sources of supply”

Still, “potential issues in the case of a longer blockage could be that delayed arrivals exacerbate the current shortage of containers in Asia, or that shortages of vital parts ultimately interrupt production of some exports,” the firm said.

There’s also the matter of what S&P’s Rogers referred to as the “long-term lessons” the world needs to learn from the Suez ship’s grounding. It exposed how vulnerable large vessels are to any mishap, which should be incorporated into planning, he explained.

“The incident will still leave its mark and represents a gentle reminder of the geopolitical importance of the Suez Canal to global trade,” Eurasia Group’s Kamel said. “Many vessels are simply not equipped to navigate around the Cape of Good hope and bigger vessels continue to be commissioned; posing broader challenges to global trade that go beyond just delivery time.”

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