How the Suez Canal blockade could affect product supply chains

AP – The cargo ship blocking the Suez Canal is holding up traffic carrying nearly $ 10 billion per day, so a quick cleanup of the logjam is essential to limit the economic downturn.

Efforts continued on Thursday to remove the Ever Given and return traffic on the emergency waterway made by people connecting the Mediterranean to the Red Sea and taking a short route between Europe and Asia.

How important is the canal to shipping?

About 10% of global trade flows through the 120-mile (193-kilometer-long) waterway, which allows tankers and ships to avoid long voyages around southern Africa.

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The iconic shipping magazine Lloyd’s List estimates that $ 9.6 billion worth of goods will pass through the canal every day. Lloyd’s says about $ 5.1 billion of that traffic goes west and $ 4.5 billion east.

About a quarter of that traffic is on shipwrecks – like the one currently dug into one side wall of the waterway. Lloyd’s says more than 50 boats cross the canal on an average day, carrying 1.2 billion tonnes of cargo.

How will this affect supply chains?

When it comes to delivering goods from Asia to Europe, there are almost no other options such as rail or truck transport, said Sharat Ganapati, a professor of economics at Georgetown University. The ban will delay a range of parts and raw materials for European products such as cotton from India for clothing, petrol from the Middle East for plastics, and automotive parts from China, he said.

“The fact that you have the most important node in the blocked trading network is going to have a huge impact on benefits around the world,” said Woan Foong Wong, a professor of economics at the University of Oregon.

The United States, which receives most Asian ships on the West Coast, will be less directly affected. However, imports from Europe may be delayed, and the ban will prevent the return of empty shipping vessels to Asia, contributing to a shortage of vessels caused by increased demand for consumer goods during the pandemic.

“If you get a lump in one place, that’s going to go through through the system,” Ganapati said. “This is going to take time to get things done non-stop.”

Is the supply chain in trouble?

The Suez situation could exacerbate issues for a supply chain that is already under pressure from the pandemic and an increase in purchases.

Virus-related restrictions have captured crews on merchant vessels. Controversial ports have led to ships anchored off the coast of California, unable to dump and load their cargo. Lack of semiconductors and rare earth elements has eroded car manufacturers and other consumer products.

“We have a lot of things that reveal a vulnerable supply chain at risk for disputes, and now you’re adding one more than that,” said Julie Swann, a logistics expert at Carolina State University who North.

What will be the impact of consumers?

It is possible that U.S. consumers will feel some impact if shipping is disrupted for more than a few days. Finished products from Asia to the United States cross the Minch. However, some components for products collected in Europe and sent to the US could delay the closure of the canal.

Mark Zandi, chief economist at Moody’s Analytics, said the canal blockage is unlikely to have much impact on the U.S. or global economies unless it slows down for weeks or months.

It may be pushing up oil prices, “but we’re not talking dollars a barrel, we’re talking a penny a barrel,” Zandi said.

The German economy could suffer, however, if the hurdle delays the transfer of auto parts to that company ‘s major car manufacturers, Zandi said.

And Spain, Italy, and France could see higher gas prices because they rely on oil shipments through the waterway, Ganapati said.

What about oil transport?

Approximately 1.9 million barrels of oil per day pass through the canal, according to Lloyd’s. That’s about 7% of marine oil. The closure could affect shipments of oil and natural gas from the Mideast to Europe. S&P Global Platts Analytics reported that about 1 million barrels of crude and 1.4 million barrels of gasoline and other refined products flow from the Middle East and Asia north through the waterway to Europe on the average day. .

Jim Burkhard, who heads the crude oil research at IHS Markit, said the impact on the global oil market will be limited if the canal is cleared soon. Energy demand remains weak due to the pandemic, and the accumulated oil pipeline is unable to move oil around the canal, from one end near Alexandria, Egypt, to a near destination Red Sea.

“If this lasts a month, there are other options – you can sail around Africa. Of course, that would add cost, ”said Burkhard. “If this ship is moved next week, it will be a milestone in history when it comes to the oil market.”

International crude crude price rose a criterion after the blockade, but prices bounced back Thursday. Analysts attributed the fall in prices to a report by an industry group of major US investments and concerns that pandemic-related locks in Europe will increase dental demand for energy – surpassing concerns about the hard drive .

Could oil-related products be slowed down?

Loads of regenerated petrol products in Europe such as gasoline and jet fuel pass through the waterway, and are delayed. Burkhard said refiners in Europe could be pushed to increase production for a short time to build the slab, Burkhard said.

Tankers using the Suez carry 8% to 10% of the world’s liquefied natural gas, according to research companies. Wood analyst MacKenzie Lucas Schmitt said there were only a few LNG loads near the canal when the blockage occurred.

“We don’t expect big bottles if the situation doesn’t go ahead,” Schmitt said. He said the timing of the event – which is spring, when demand for LNG is generally declining – means it will have less of an impact on prices than has recently been delayed. Panama Canal. These delays have led to increased LNG shipping rates, according to data from S&P Global Platts Analytics.