The Suez Canal incident plagued the global supply chain

“After” the Suez Canal Incident: The pressure on the global supply chain remains enormous

The Suez Canal congestion, coupled with the booming global demand for consumer goods, is putting pressure on the supply chain.

According to estimates by German insurance company Allianz, traffic through the blocked Suez Canal could cost global trade about $ 6-10 billion a day.
The Ever Given super ship on March 29 had a problem and blocked the Suez Canal. Photo: AFP

Supply chain challenges

On March 29, the “super ship” carrying Ever Given, operated by Taiwan’s Evergreen Shipping Group, was pulled from the place of jam after blocking the Suez Canal. However, that doesn’t mean the crisis is over for companies that depend on raw materials, components and products to be delivered on time.

Shortages are most pressing in the auto industry, where manufacturers have previously been forced to cut production due to limited supplies of semiconductors. Congestion in the Suez Canal adds to the risk of a serious shortage of raw materials and other inputs.

The chairman of the Suez Canal Authority, Osama Rabie, said that there are still 422 ships waiting to pass through the Suez Canal, which is estimated to take about three and a half days to move all of them at either end of the canal. The White House has offered assistance to clear the channel. Similar proposals are made in the UAE and China. The canal regulator said it has yet to accept any help. However, they may need assistance if they have to relocate large numbers of containers from Ever Given.

Blocked Suez can cause global trade losses of about $ 6-10 billion a day, according to research from German insurance company Allianz. In particular, the consequences are mainly Asian exporters and European importers. The US importers are also facing the risk of delayed orders and rising costs. Even before the incident, the cost of inputs in the euro area increased at the fastest rate in a decade.

“This is a huge blow to the supply chain that has been rising from the pandemic,” Rahul Kapoor, deputy director of shipping and commerce at IHS Global Insight, told Bloomberg. With more than 300 cargo ships congested in the Suez Canal, according to Politico, the damage to the global economy is about $ 400 million per hour.

About 10% of all global seaborne oil shipping goes through the Suez Canal. Immediately after the opening of the canal, the world crude oil price fell sharply. WTI US crude oil is down 1.8% to $ 59.85 a barrel. Brent oil fell 1.56% to $ 63.5.

The ship jam in the Suez Canal also has an impact on import and export activities between Vietnam and Europe. Leaders of the Ministry of Industry and Trade said that in 2020, Vietnam exported to Europe with a turnover of 43.7 billion USD and imported from this market 18.5 billion USD. In the first two months of 2021, the export figure was 7.5 billion USD and import 3.1 billion USD, corresponding to the growth rate of 18% and 12%. Therefore, along with the situation of high seagoing freight rates due to the impact of the COVID-19 epidemic, this incident will more or less affect import and export activities between Vietnam and the European region.

Response measures after the incident

Currently, companies do not have much time to plan contingencies. Some container ships and oil tankers had to go other routes, making the Asia-Europe journey longer than a week. Citing the analysis of experts, the Bloomberg news agency said that changing the direction around the Cape of Hao Vong makes the cost of fuel of the ship alone can increase to 300,000 USD, not to mention other costs such as fines for late delivery.

Peter Sand, BIMCO’s head of ship analysis, said: “We see not only cargo ships changing direction, but also natural gas tankers and dry cargo ships. This changed direction to the right in the middle of the Atlantic, and south to the Cape of Good Hope to avoid congestion in the Suez Canal “.

Shipping company MSC Mediterranean said 11 ships in its fleet are changing directions, 19 ships are anchored on both sides of the Suez Canal and two have already returned to the port.

In the short term, disrupted global trade will lead to higher transportation costs, reduced supply and longer delivery times. In the long term, this incident could force the world to rethink the risks of over-globalization and the supply chain dependent on factors that are too unpredictable. However, Mr. Robert Koopman – chief economist at the World Trade Organization (WTO) considers the Suez incident a test that the global economy must undergo.

Koopman said that previous incidents such as cold in Texas caused power outages at a series of factories in the largest petrochemical complex in the world, or the fire at the leading automobile chip factory. In Japan, incidents are still happening frequently and businesses need to find ways to adapt.

Caroline Becquart, MSC’s senior vice president, said congestion in the Suez Canal was one of the biggest global trade disruptions in recent years.

She predicts that the second quarter of 2021 will see more disruptions compared to the first quarter, and the shipping situation will be more challenging than at the end of last year. Therefore, companies should be prepared for situations of limited shipping capacity and reduced supply chain reliability in the coming months.