The cargo ship blocking the Suez Canal holds traffic carrying goods worth nearly $ 10 billion every day, so a quick clean-up of the loggia is essential to limit the economic impact.
Efforts continued on Thursday to deploy the Ever Date container ship and restoring man-made critical inland waterway traffic, linking the Mediterranean Sea to the Red Sea and providing a fast shipping order between Europe and Asia.
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HOW VITAL IS THE TRANSPORT CHANNEL?
About 10% of total global trade flows through the 120-mile-long (193-kilometer-long) canal, which allows containerized tanks and ships to avoid a long journey around the southern tip of Africa.
The iconic Lloyd’s List estimates that $ 9.6 billion worth of goods pass through the canal every day. Lloyd’s says about $ 5.1 billion of this traffic goes west and $ 4.5 billion goes east.
About a quarter of that traffic takes place on container ships – such as the one currently buried in a side wall of the canal. Lloyd’s says more than 50 ships cross the canal in an average day, carrying 1.2 billion tons of cargo.
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WHAT EFFECT WILL THIS HAVE ON THE SUPPLY CHAINS?
When it comes to transporting goods from Asia to Europe, there are virtually no alternatives, such as rail or truck, said Sharat Ganapati, a professor of economics at Georgetown University. The blockade will delay a number of parts and raw materials for European products, such as cotton in India for clothing, oil in the Middle East for plastics and car parts in China, he said.
“The fact that you have the most important node in the blocked trading network will have important effects on well-being around the world,” said Woan Foong Wong, a professor of economics at the University of Oregon.
There will be a smaller direct impact on the United States, which receives the most shipments from Asia on the west coast. However, imports from Europe may be delayed, and the blockade will prevent the return of empty shipping containers to Asia, adding to a shortage of containers caused by rising demand for consumer goods during the pandemic.
“If you get a shot in one place, it will be percolated through the system,” Ganapati said. “It will take some time for things not to stick.”
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IS THE POWER SUPPLY CHAIN IN PROBLEM?
The situation in Suez could exacerbate the problems of a supply chain that is already under pressure from the pandemic and an increase in purchases.
Virus restrictions have caught crews on merchant ships. Crowded ports have led to container ships anchoring off the coast of California, unable to dock and unload cargo. The lack of semiconductors and rare earth elements has affected carmakers and other consumer products.
“We have a lot of things that indicate a vulnerable supply chain, at risk of disruption, and now put one more thing on top,” said Julie Swann, a logistics expert at North Carolina State University.
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HOW WILL CONSUMERS BE AFFECTED?
American consumers may have some impact if transportation is interrupted for more than a few days. Finished products from Asia to the United States cross the Pacific. However, some components for products that are assembled in Europe and shipped to the US may be delayed by channel closure.
Mark Zandi, chief economist at Moody’s Analytics, said blocking the channel is unlikely to have much of an impact on US or global economies unless it is extended for weeks or months.
Oil prices may rise, “but we’re not talking dollars on the barrel, we’re talking money on the barrel,” Zandi said.
Germany’s economy could suffer, however, if the blockage delays the shipment of car parts to the company’s major carmakers, Zandi said.
And Spain, Italy and France could see higher gas prices because they rely on oil transportation through the canal, Ganapati said.
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WHAT ABOUT OIL TRANSPORTATION?
About 1.9 million barrels of oil a day pass through the canal, according to Lloyd’s. This represents about 7% of total oil at sea. The closure could affect oil and gas shipments from the Middle East to Europe. S&P Global Platts Analytics said about 1 million barrels of crude oil and 1.4 million barrels of gasoline and other refined products flow from the Middle East and North Asia through the canal to Europe on average.
Jim Burkhard, who conducts crude oil research at IHS Markit, said the impact on the global oil market will be limited if the canal is cleaned up soon. Energy demand is still weak due to the pandemic, and the Sumed pipeline has an unused capacity to move oil around the canal, from one end near Alexandria, Egypt, to a terminal near the Red Sea.
“If it lasts a month, there are other options – you can sail through Africa. Of course, that would add costs, “said Burkhard. “If this ship is moved next week, it will be a footnote in history when it comes to the oil market.”
The price of the international reference oil rose after the blockade, but prices fell on Thursday. Analysts have attributed the drop in the price of a report from an industry group in large US inventories and are worried that pandemic blockages in Europe will continue to affect energy demand – overcoming concerns about the blocked ship.
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CAN OIL-RELATED PRODUCTS BE SLOW?
Shipments of refined petroleum products to Europe, such as petrol and aircraft fuel, are also passing through the canal and will be delayed. Burkhard said refineries in Europe could be pushed to temporarily increase production to raise the weakness, Burkhard said.
Oil companies using Suez carry 8% to 10% of the world’s liquefied natural gas, according to research firms. Wood Mackenzie analyst Lucas Schmitt said only a few consignments of LNG were near the canal when the blockade occurred.
“We do not expect major blockages unless the situation continues,” Schmitt said. He added that the timing of the incident – it’s spring, when LNG demand is usually declining – means it will have a smaller impact on prices than the recent delays in the Panama Canal. These delays have led to an increase in LNG transport tariffs, according to S&P Global Platts Analytics.