Suez Canal Block Deepens Global Container Crunch

Trade Insights

02 August 2021 • 16 min read

Suez Canal Block Deepens Global Container Crunch

Editorial Team

Know about the incident which blocked the Suez canal and how would it impact the global shipping industry. Will container freight charges increase or stay constant.

On the 23rd of March 2021, the shipping world was presented with a rather absorbing image of the Evergreen megaship “Ever Given” stranded in the middle of the Suez Canal. It’s not every day that you come across a 220,000 tonne ship lose course and get beached. At first it seemed like an episode of Fast & Furious gone bad, a captain not particularly great at drifting their gear. But there’s more at play here. It seems like a number of different factors came together to bring us where we are today. Murphy’s Law and reverse serendipity!

Satellite Images of the Evergiven blocking the Suez Canal
Satellite Images of the Evergiven blocking the Suez Canal

The ship has now been blocking two-way traffic on the Suez for the last 3 days, with reports that it may take weeks for the ship to be un-beached. Reportedly there are 206 ships waiting for traffic to resume, on what is one of the busiest trade routes in the world. Excavating ships out a canal, I presume, is a fairly challenging endeavour. Especially when you have a lone excavator and some puny Egyptian tugboats. David vs Goliath doesn’t always play out in David’s favour.

There’s also clearly a lack of ideas as to how to deal with this situation. As discussed, one doesn't come across a beached megaship on a daily basis. Here are some other ships that have run aground in the past:

  • In 2016 the 19,000 TEU ultra-large container vessel CSCL Indian Ocean ran aground in the Elbe river while approaching Hamburg in Germany. At that point in time, it took about 6 days to get the vessel refloated.
  • In 2016, the 12,500 TEU container ship MSC Fabiola ran aground at Great Bitter Lake after experiencing engine problems, forcing canal officials to temporarily suspend all northbound convoys and stop all southbound convoys in the canal. It took about 2 days to get the vessel refloated and continued through the canal.
  • In 2017 the 13,000 TEU ultra-large container vessel CSCL Jupiter ran aground near Bath, Netherlands shortly after departing from the port of Antwerp and it took less than a day to refloat.

Importance of Suez canal

Built in 1869, the Suez canal is an artificial sea-level waterway in Egypt, connecting the Mediterranean Sea to the Red Sea. It is one of the World’s busiest waterways. It allows for the shortest trade route possible by water between Europe and Asia and thus, saves billions of dollars for the industry. The Egyptian government is said to have spent about $8 billion in 2015 for the renovation of the canal to attract more business. Large volumes of goods from China and South Asia to Europe, India to Europe, Europe to Asia, Persian Gulf to US Gulf etc cross the canal.

An earth mover trying to dislodge the beached ship. Source: Reuters

Under the routine setup, an average of 52 vessels of all types and 13 container vessels pass through the Suez canal per day. The World Shipping Council report shows the maximum throughput of the Suez canal as 106 vessels each day. Which means that if the canal is closed for 1 day, the resultant queue can be cleared within the 1st opening day using the daily surplus capacity. If it is closed for 2 days, it will take 2 additional days after re-opening to clear the queue; given that more vessels will arrive for normal transits every day. The canal has thus far been closed for 3 consecutive days and we are therefore now in the phase where the queue continues to stretch further into the future.

What does this blockage mean for trade?

The impact on movement of goods would be enormous since both north and south bound convoys are stuck. The longer this situation continues, the longer the queue. There have been some reports that some carriers may divert traffic around Africa to avoid delays. But most are expected to wait it out in the hope that this issue will be resolved in a couple of days. Regardless, it will take at least a few more days to clear the canal. While the 1st order effects of such a situation are visible to all, the second order effects are going to be huge too. There are cascading repercussions for trade between more than half the world’s population, affecting millions of commodities and billions of people.

The ships bulb trapped in the earth. Source: Reuters

“If you delay this vessel at Suez anchorage, it means you are making the ship owner lose $60,000 [£44,000] per day or $3-4000 per hour of delay,” said Sayegh, the Beirut agent for the shipping journal Lloyd’s.

From an Asia-Europe perspective alone, the canal sees approximately 30 head haul passages per week with a capacity around 380,000 TEU. The exact data may fluctuate from week to week due to the blank sailings and inconsistencies in the vessel sizes.

If the vessels are at their full capacity, they carry 55,000 TEU of cargo from Asia to Europe daily. And as per current expectation it will take 5-6 days to clear the canal. This will result in a delayed delivery for nearly 2,75,000 TEUs of cargo, causing a spike of cargo into the main ports in Europe once the Suez is opened again. We fully expect increased congestion on European ports in the very near future, similar to the one seen on the US West Coast once COVID-19 restrictions were lifted.

At the same time this incident will delay the movement of 55,000 TEUs worth of containers coming back to Asia per day, further adding to the container shortage issues faced by shippers in this part of the world. This may force carriers to blank a raft of Asia - Europe sailings for late April and early May, creating temporary capacity shortages for the shippers. Hopefully this does not come to pass, but shippers ought to consider the potential risk now.

Ofcourse, other trade lanes and services plying on the Suez Canal will also be affected. We are expecting trade from MEA to Europe and Asia to the US East Coast to be affected severely over the coming weeks.

Suez canal closure's economic impact on container shipping

Will the container freight charges increase or Stay constant

A delay of 3 days, in the current market scenario is not a big deal. For the Asia-Europe trade lane, data points from Ocean insights shows that 2 out of 3 vessels arrive late, and the variance is 4 days.

If the canal is re-opened soon, operational delays caused by Evergiven will not be as significant. However, If this drags out for a couple of weeks, the situation changes. It effectively removes vessel capacity from the market and also delays the process of replenishing empty containers in Asia. Normally this would cause an upwards pressure on freight rates. But (and sigh!), the circumstances are far from normal. Freight rates are already at their peak. The freight market fundamentals are under such severe stress due to ripple-effects of the pandemic that the added impact of the Suez blockage is very hard to isolate and attribute.


Update at the Suez Canal

There were 3 vessels sitting behind Evergiven out of which 2 vessels have already been reversed by tugboats to the southern end of the Suez canal. Movement through the canal is temporarily suspended so that Evergiven can be refloated.

26th March: Shipping companies are now contemplating diverting their vessels to take the long route south around Africa on Asia-North Europe and Asia-USEC services. This will take approximately one week to 10 days more than using the Suez, resulting in increased fuel consumption, and higher subsequent costs. 

The carriers started to issue advisories related to the Suez Canal blockage. In essence they are stating the obvious i.e; they don’t know how long it would take for the situation to normalise and therefore cannot advice the customers "when their cargo will be delivered."

27th March: Several specific vessels were seen to have been diverted round Africa in the past 36 hours. It is now becoming a structured trend across the carriers.

Alternate shipping route to Suez Canal
Ships stuck at the Suez Canal have started a detour thousands of miles around Africa.

Operation to free Evergiven stuck in the Suez Canal
An operation to free Evergiven stuck in the Suez Canal. Source: BBC

Early 29th March: Preliminary indications this morning is that the Evergreen vessel has been refloated.

*Preliminary indications as there is no official statement yet.

Late 29th March: Ever Given has been dislodged in the Suez Canal and is now fully floating. It is expected that the vessel will be moved to the Great Bitter Lake. Once the vessel is safe at anchorage, the vessels currently at anchorage in the lake will sail out of the canal in a convoy. The canal could be opened within the next 12-24 hours, but the current situation remains that the canal is not yet free for passage.

End Notes

The Suez Canal has been supposedly freed after a closure of 6 days due to the grounding of Evergiven. After continuous efforts to float the vessel it has finally moved. There is no news on the traffic resumption yet. The vessels which have already been diverted to go around Africa are likely to proceed on their journey as it will take a while before the queues are cleared and the canal is back to normal flow of operations.

The metaphorical dominoes have already been toppled and we will continue to see the unfolding of congestion issues in Europe as the cargo arrives, blank sailings resulting from the severe delay of many vessels as well as a deterioration of the equipment situation. These ripple effects will take several months to be fully worked through.

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