COVID-19 to Suez Canal Blockage

Trade Insights

02 August 2021 • 20 min read

COVID-19 to Suez Canal Blockage

Editorial Team

Know about the shipping challenges that the world is facing in 2021. From Covid 19 to the Suez canal blockage to the resulting port congestion, container shortages, blank sailings and soaring freight rates.

MSC, the second largest shipping company in the world calls Suez blockage "one of the biggest disruptions to global trade in recent years"

On March 29, tug boats honked their horns in celebration as the megaship MV Ever Given was refloated, ending its six-day-long blockade of the Suez Canal, one of the world’s busiest trade routes connecting the Mediterranean Sea to the Red Sea. But the celebrations might have been premature. The blocking of the canal is the latest disaster to hit the shipping industry. It’s been one crisis after another, starting with the Covid-19 pandemic in 2020, followed by Brexit in January 2021, and now this. In between, a record surge in imports to the United States and Europe from Asia should have elicited a sigh of relief from a battered global economy. On the contrary, it stretched the global supply chain – from shipping lines, ports and warehouses to factories – even more. What’s happening is unprecedented. And it doesn’t look like it’s going away in a hurry.

This piece tackles the current crisis hobbling the shipping industry and global trade, and also discusses ways to get around it. Given that this is a fast evolving situation, you might like to check out some of our earlier blogs on the subject:

Suez Canal Closure Deepens Global Container Crunch

Shipment Delayed? Can’t Find A Container? Blame Peak Season Rush: Covid-19

Container Rollovers Are On The Rise As Shipping Crisis Deepens

Container Crisis: An Auto-response To The Global Lockdowns Of Covid-19 Pandemic

Shipping challenges that the World is facing right now

Shipping challenges that the World is facing right now

A whole lot, actually. Here’s a round-up, starting with the latest major event:

Suez Canal – It’s not over yet 

The Ever Given has been freed and the Suez Canal unblocked. But there were 450-odd vessels stranded on either side of the blockage for the six days the ship was wedged in. By the time these ships crossed the canal, it was already April 3. That’s a delay of 11 days just at the incident site. It will take weeks more for these ships – which took off from Asia and are headed for Europe – to complete their journeys. Additionally, some vessels were re-routed via the Cape of Good Hope to avoid the canal. This adds an average of eight more days to their journey.

As for the Ever Given, Egyptian authorities have impounded the vessel with its 18,300 container loads of cargo and 25-member crew. They are demanding $900 million in compensation from the ship’s Japanese owner, Shoei Kisen Kaisha. The cargo might be detained till the dispute is settled. Taiwan’s Evergreen, which was operating the vessel on a long-term charter, is considering moving the cargo to other ships. But this would be a challenging and time-consuming exercise. Given that a long delay is inevitable, reports indicate that the ship owner could face a storm of claims from cargo owners over the loss of perishable goods and delayed deliveries.  

Suez blockage: Extra transit days & 6% global capacity reduction

Port congestion worsens 

The delayed arrival of ships stranded at the Suez is bound to clog up ports worldwide, especially in Europe. Lars Jensen, chief executive of SeaIntelligence Consulting, said cargo could flood European ports “like ketchup out of a bottle”. Terminal, warehousing and trucking operations will naturally be affected. Larger ports like Singapore, Rotterdam and New York are expected to bear the brunt of this unplanned spike in ship calls. On April 12, ships with a collective capacity of 370,000 TEU were reportedly on route to Singapore, where 83 vessels with a capacity of 299,310 TEU were already waiting to be unloaded.

Port congestion means delays. By this projection, the collective delay to shipping fleets caused by the Suez incident is 1,072 days. On the Shanghai-Rotterdam route, delays are up to seven days from three days at this time last year. In an indication of just how bad shipping schedules have been impacted, German shipping company Hamburg Süd, in an update of its North America operations between April 12 and April 19, reported delays ranging from 2.5 days to an alarming 59 days.       

Even before the blockage, ports had been dealing with prolonged congestion and large-scale workforce absenteeism as a direct consequence of the pandemic. According to this report, port congestion in the second half of 2020 – when the global economy went back to work after restrictions were lifted – increased 20% from the same period in 2019. This means ships loading and unloading an average of 6,000 containers per visit spent 83 hours at ports, an increase of 20% from the previous year.    

If that isn’t bad enough, traders moving their goods in and out of the UK have had to contend with increased port congestion due to Britain’s decision in January to exit the European Union and the resultant changes in customs processes. Leading UK ports like Felixstowe and Southampton are seeing a critical build-up of containers.

Container shortage plays on

For every container stuck in the UK, that’s one container less in Asia. And hundreds of thousands of containers have been grounded at US and Europe ports for months now, thanks to pandemic restrictions first and then record imports from Asia in the build-up to Christmas and New Year. For every 10 containers shipped to North America from Asia, only four reportedly return. The result is a severe container crunch in Asia that is forcing rice exporters in Thailand, Vietnam and Cambodia to give up on some shipments to the US. The imbalance has been aggravated by carriers focusing on the more lucrative Asia-US and Asia-Europe routes. So, stacks of empty containers are idling at ports in Africa, South America, Australia and New Zealand. Now, with a huge fleet headed for Europe after the Suez re-opening, the container build-up in the continent is set to worsen.    

Blank sailings continue

The Suez incident has also added to the scheduling problems of shipping lines. Most have planned blank sailings during April and May so that they can focus on dealing with current delays. To blank a sailing is to cancel all or part of the voyage. On April 7, German shipping major Hapag-Lloyd said that its vessel HMM Rotterdam, which was re-routed via the Cape of Good Hope, would be omitting Jebel Ali to make up for time. Cargo bound for the Dubai port will be discharged in Singapore and sent on a separate ship. Blank sailings have become a frequent occurrence in the recent past. In December too, THE Alliance, a group of carriers including Hapag-Lloyd, blanked sailings on key routes citing “unprecedented times of the pandemic”.

Change in weekly capacity - Before & After Suez blockage ( March to May 2021)

Impact on global trade and economy

The supply chain disruptions, caused by pandemic conditions and inflamed by the Suez Canal blockage, are expected to have massive implications, financial or otherwise. Some of these outcomes are already being felt:

  1. Freight rates through the roof – After the Suez incident, freight rates on many Asia-Europe and Asia-US routes have risen steadily through April, shows maritime consultant Drewry’s World Container Index. One reason for this is fresh surcharges by shipping lines. For example, CMA CGM has imposed a peak season surcharge on most of its routes. Drewry’s index also reveals current Asia-Europe and Asia-US freight rates are on average 221% higher than at the same time last year. This is primarily due to the pandemic, which consistently drove prices up. The cost of shipping goods on the China-Europe route in March 2021 was three times what it was in November 2020 while China-US West Coast rates doubled between June 2020 and March this year, according to this report. Another report shows that it now costs more to ship to North America from Singapore than from any other Southeast Asian port due to the crippling congestion in Singapore. 
  2. Additional costs – The supply chain disruptions have added to shippers’ expenses in the form of demurrage, detention and storage fees at ports,  and rescheduling charges as a result of cargo rollovers and blank sailings. Shippers are also spending more money to stock up on extra inventory.
  3. Delays and extended buffer times – The Suez incident’s immediate impact is a 60%-80% drop in export capacity on Asia-Europe routes, according to consultant Sea-Intelligence. This means export cargo in Europe will have to wait at least a fortnight before it can be moved, it adds. Long delays are already forcing shippers worldwide to add weeks to their delivery schedules.        
  4. Inflation watch – There’s a real danger that the steep hike in shipping costs will have a knock-on effect on inflation. Two days before the Ever Given was refloated, The Washington Post reported an increase in oil and African coffee bean prices due to a scarcity scare. It warned that other commodities such as chemicals, apparel, iron ore and manufactured goods could be impacted as well.
  5. Spillover effect – The high demand for container ships is spilling over into other modes of shipping such as break bulk, according to this Bloomberg report. Break bulk is the mode of transporting loose material that cannot be shipped in containers (barrels, drums, paper reels, etc). Wood pulp, a raw material for toilet paper, is shipped as break bulk cargo. And Suzano SA, a global supplier of wood pulp in Brazil, told Bloomberg a growing demand for break bulk cargo vessels was hampering their exports to such an extent that it might lead to a toilet paper shortage.
Impact of current Shipping challenges on global trade and economy

Solution: 3 ways to increase efficiency

The supply chain disruptions are an indication of what ails the shipping industry at large and will most likely persist beyond Covid-19. This calls for long-term planning. Maritime consultant Drewry suggests three solutions, which cannot work without the entire supply chain coming together. They are:      

  1. Ensure greater transparency of port capacity and productivity to catch early warning signs
  2. Urge shippers to act on the early warning signs and re-route cargo early. Re-routing means additional expense, so this might call for some form of financial incentive, Drewry suggests   
  3. Encourage carriers to proactively adjust schedules early and refrain from cut-and-run responses 

To make these suggestions action, several tech companies are offering digital solutions to shippers and carriers. These include:

  • Port Intel, an online port congestion report service Launched on March 15, informs its subscribers when their ships are anchored near congested ports and helps them look for alternative routes.
  • Port technology provider Portchain’s berth optimisation software provides data on berthing capacity at ports. This helps carriers plan ahead and share accurate schedule details with ports, which can optimise their berthing and equipment utilisation as a result. Portchain counts several ports in Europe and Asia as well as leading carrier Hapag-Lloyd among its customers.
  • Non-profit Digital Container Shipping Association’s (DCSA) Track & Trace (T&T) standards offer shippers real-time, cross-carrier data on the status of their cargo. The DCSA T&T standards have been adopted by most of the association’s carrier members including MSC, Ocean Network Express (ONE), CMA CGM, Yang Ming and Evergreen.
  • Port of Singapore Authority’s (PSA) cargo solutions, such as “Priority Discharge” for time-sensitive cargo, “Top Stowage” and “Express Delivery” for shipments requiring expedited discharge and delivery, “Flexi-Alerts” email or SMS service for timely updates on vessel arrival and departure, load and discharge times, and so on.        

From the suggestions and solutions mentioned above and from UNCTAD, it is clear that a permanent fix for the current problem lies in increased digitisation of shipping services and improved communication between supply chain partners.

When will the situation normalise?

Not until 2022, by most accounts. Port and container shortages are expected to persist through 2021, lessening in degree with the passing months. Freight rates will likely stay high till 2022, according to Drewry’s latest Container Forecaster report. It tallied the collective operational profit for shipping lines in 2020 to be $26.6 billion, the highest it has recorded, and predicted that this record might be eclipsed in 2021. Freight rates might start easing up in 2022 but are expected to stay elevated till 2023, the report added.

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