Clog at the Canal: A Local Look at Suez Situation

It’s not an American crisis yet, but the cargo ship that’s stuck in the Suez Canal in Egypt has market analysts keeping close watch.Suez Canal 3

The gigantic ship got stuck in the Suez Canal when high winds and a dust storm turned it sideways on Tuesday. The ship is hauling some 20,000 shipping containers and weighs roughly 440 million pounds. At 1,300 feet long, the Ever Given measures in at about four football fields long: almost as long as the Empire State building is tall.  Since it ran aground it’s been blocking one of the world’s busiest shipping routes.

Dr. Alex Cartwright is a Ferris State University Assistant Professor of Economics. “This has introduced a lot of uncertainty. And it’s another reason to remind people how fragile these supply chains can be.”

Suez Canal Ship

CNES2021/DISTRIBUTION AIRBUS DS/AP

It’s a logjam of epic proportions. The shortest route between Europe and Asia is blocked off by the Ever Given – and it’s now a clog at the canal. Patrick DeHaan is the Head of Petroleum Analysis with GasBuddy.com says, “There’s a lot of ships being blocked right now. Some 300 ships waiting for the Suez Canal to clear. Some of those ships carry crude oil, some are carrying blend stocks that go to refineries that produce products.”

The trade route moves energy exports, like liquefied natural gas, crude oil, and refined oil. But the question is, will it impact us here in the US, and the price we pay at the pump? DeHaan says, “I think the one implication we’re seeing is the price of crude oil. Because there’s so much that does flow through the Suez Canal.” But, he adds most of that is destined for Europe and not the United States.

Cartwright says, “Because there is so much, not just oil, but also jet fuel, natural gas that comes through Suez Canal, a lot of people are looking at that. Wondering what’s going to happen to energy prices, and what’s going to happen to inflation. All of those prices are poised to rise.” And he says it’s already starting. “On Wednesday we saw the price of crude oil jump to its highest point in almost a year. And it had its biggest one day gain in a year to about $64 a barrel.”

Even having said all that, Cartwright says, “The markets seem to indicate there’s not a big reason to be concerned.” DeHaan agrees that the impact on the price we pay at the gas pump would likely be minimal – if it even reaches us here.

Suez Canal Ship 2

Photo Courtesy: Suez Canal Authority

Other oil producers can ramp up production or move to shipments on other routes. DeHaan says, “If European refineries start to get choked off, then we could see more of a price impact. But it’s tough to know when this will clear.”

It’s not just energy products that are on board. Losses of $400 (M) million dollars an hour in goods that can’t reach their destination – up to $9 (B) billion dollar per day. The delay will impact US imports arriving at manufacturers, or hitting store shelves. Cartwright says, “About 10%-12% of all shipping is going through there. It’s hard to say exactly what products are going to see a spike in prices.  Are there Nike shoes on there? Are there chemicals on there? Is there exercise equipment? … It’s really hard for anyone to say.”

“Only 10%-12% of global trade comes through the Suez Canal, which is not a non-trivial amount. But this has introduced a lot of uncertainty. And it’s another reason to remind people how fragile these supply chains can be,” Cartwright adds.

Suez Canal MapThe Suez Canal isn’t the only option, but it is the fastest. Other vessels must decide to either wait it out or take a detour. Cartwright says, “These products will start finding alternate routes. I know that it will take a week delay to go around the southern tip of Africa. And it could add about $500,000 to a shipment. But that’s only about $25 per container on these megaships.”

The detour not only adds a week to the voyage, but can also carry security risks, like piracy. DeHaan says products bound for America usually take different routes anyway. “Much of the products between the Middle East and the US can come to the west coast – and do go to the west coast – which can ship through Asia.”  He adds, “In terms of blockage, this is something that’s kind of blocking more product movement between the Middle East and Europe.”

It could take days – maybe weeks to move it out of the way. In the meantime – while crews work to free the vessel, it’s a waiting game for the rest of the world. “It’s starting to make some waves. How big will those waves grow? Really every day here we see a blockage continue there could be more and more of an impact.”

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