By Arka Chaudhuri
The Suez Canal is undoubtedly one of the most important maritime regions in the world, separating Asia and Africa and providing a direct route from the Mediterranean sea to the Red Sea, hence essentially all of the East. The 193 Km Canal, which carries close to 12% of all maritime trade, saves shipping companies a lot of time and money as a faster alternative to going around the African Continent. The massive cargo ship, Ever Given, one of the largest in the world was finally floated on Monday after a whole 6 days of rigorous attempts by several salvage teams. The world sighed as the 400m long cargo vessel was freed from the canal where it had been stuck since 23rd March. It had brought a major portion of the world’s maritime trade to a standstill, disrupting supply chains all over the world. After magnanimous efforts, normal traffic has been resumed in the canal, billions of dollars worth of shipments were stuck, delaying essential shipments. Several nations in the East as well as the West have suffered from the delayed shipments.
The Suez Canal is one the most important maritime routes in the world as well as a major chokepoint of the shipping industry(more on that in a bit). The canal is a key player in the transportation of Oil, refined Gas, and other essential commodities from the East to the West.
According to the data provided by Lloyds’ List, the canal facilities close to 9 billion of trade every day or a whopping 400 million dollars every hour. The blockage cost 54 billion dollars in loss, however, the figures are based only on the cargo shipments that were delayed or stuck in this incident. The actual Economic cost of the blockage is assumed to be much higher because of the cost of essential commodities like oil and gas as people feared the blockade would go on for weeks. The canal is also a major earner for Egypt’s economy, makings somewhere around 15 billion in revenue every year. Government representatives state that the blockade cost them roughly 15-16 million in tolls.
The blockade also cost online and offline retailers a hefty sum due to delayed shipments disabling the whole supply chain temporarily. German Insurer Allianz has stated that the incident could shun global trade by close to 0.2% to 0.4% on an annual basis.
The Suez Canal gives way to 18000 ships every year. It is 8900km shorter than its other counterparts, making it one of the most commercialized shipping routes in the world which also makes it a major choking point in the shipping industry. Shipping is the cheapest way to get cargo from one part of the world to another, making it a booming industry that depends on very sensitive areas to operate at such a low cost. However a blockade as we saw shouldn’t necessarily mean a complete standstill in global trade. The seas are vast and in most cases the shipping companies charter off the route causing only a minor delay and increase in price. As mentioned, because the shipping prices are already so low, a minor increase in prices doesn’t hamper trade that much.
The problem with this case, related to the Suez Canal is that the other alternatives are relatively unsafe for a vessel carrying millions of dollars worth of cargo. The other routes are much longer and through the regions in which shipping companies feel unsafe traversing through. This all combines with the fact that the Suez Canal is very narrow with ships regularly having to wait in long lines to cross the canal. Now taking about security, although this particular incident wasn’t caused by a security threat, it goes to show how vital these choke points are for the world’s supply chains. These choke points are like ” sitting ducks ” for terrorists or illegal sieges for people trying to make a point. Although this might be laughed over as an exaggeration, the Persian Gulf Trailer Crisis isn’t far from what we fear.
The region in which the Suez Canal is located isn’t well known for being a safe sea faring zone. Piracy is evident in the routes ships take and even more evident in other alternatives the ships could take. Sea faring in the Red Sea has its own challenges which aren’t changing overnight. This has even forced BIMCO to appeal to the US navy to look into security guidance. Shipping is one of the most vital industries in the world, forming the backbone of the world’s supply chain. Yet it is a very vulnerable system because of the increase in piracy in the Suez Canal and the Strait of Hormuz.