The Suez Canal has been blocked for almost a week by the container ship 'Ever Given'.

As reported on Monday, March 29, 2021, by the Reuters news agency, the container ship was almost completely pulled away on Monday morning. The ship's engines have been started. Read more at gospodarkamorska.pl

For a comment on this case and outlining the consequences of blocking one of the world's most important waterways, we asked dr hab. Ernest Czermański, prof. UG from the Maritime Economy Department of the Faculty of Transport and Maritime Trade at the University of Gdańsk.

The following is a commentary by dr hab. Ernest Czermanski, prof. UG:

The Suez Canal, along with the Panama Canal, is one of the most important sections of seafaring and is thus a key corridor for international trade. In 2020, 18,800 ships used it. This gives a daily average of 52 ships in both directions. This means that every day the problem of congestion in the channel is growing at a high rate. Those currently waiting for transit can be seen very well in the various vessel traffic services. Of a total of almost 19,000 ships, 26% are container ships. As you can easily count, this amounts to almost 4,900 units per year. An average of 13 of these ships thus cross the Suez Canal every day. Statistics from the canal operator also show that the container ship group accounts for half of the tonnage of all ships crossing the canal.

Two conclusions can be drawn from the above statistics. Firstly, container ships are on average twice as large as the other types of ships passing through Suez. This can be seen in the photos of the ship that is currently stuck in the canal. Its dimensions are 400 m long, 59 m wide, almost 16 m draft and just over 20 000 TEU (twenty-foot equivalent units) of cargo capacity. It is indeed a giant among ships. Far more important, however, is the fact that container ships carry a significant proportion of the cargo on a global trade scale. The operator of the canal officially states that more than 1 000 000 000 tonnes of cargo passes through it every year. It can therefore be estimated that half of this is containerised goods.

Compared to alternative routes, i.e. circumnavigating Africa around the Cape of Good Hope, the Suez Canal shortens the distance between Europe and Asia by about 3,300 nautical miles. This is a distance that, at an average speed of 17 knots, would take an extra 8 days of sailing and cost between $500,000 and $1 million for the ship, depending on its size, speed and many other factors. Here we have to rely on heavily averaged values. Starting therefore with global values, it can be said that shutting down such a channel would entail additional costs for shipowners of between USD 10 billion and USD 19 billion per year, and, in terms of cargo tonnage, an additional USD 10 to 19 in transport costs per tonne. This is not much, especially when we consider finished products, such as a television weighing 20 kg, as this would amount to 30 cents per unit. Or a pair of shoes weighing 1 kg, which will be 1 cent. However, such an accident does a lot of harm to logistics chains, collapsing further stages of the chain. This is because Europe overwhelmingly produces on a 'just in time' basis, minimising inventories. A delay of a few days can therefore interrupt production cycles, especially when components or parts for the assembly of finished products get stuck in transit. We had a similar situation at the start of the pandemic in 2020 when production in China came to a complete standstill so that the European economy had to slow down considerably.

In micro terms, for a shipowner, re-routing in this particular case is the cost of either waiting in line until the channel is unblocked or an extended voyage around Africa. Taking the specific example of the container ship that is stranded, this could range from US$30,000 per day at anchor, to US$60,000 per day sailing around Africa. And the cargoes it carries already have an agreed rate and it's hard to pass this extra cost on to the shipper.

What do shipowners do in this situation? They immediately raise rates for subsequent bookings. And so, we saw on the very same day of the breakdown, sudden increases from USD 7,000 to USD 12,000 for a typical 40' container. The difference of these 5.000 USD may often decide about the profitability of a commercial transaction, because on the one hand production costs in China, in some part of the personnel costs, have significantly increased compared to the 1990s or even the beginning of the 21st century, but also production in Europe has its niches with low production costs thanks to, for example, automation or digitalization of processes. A great example is the import of photovoltaic panels, which at a price of USD 7,000 per container is on the brink of profitability, above which it will either generate an increase in the cost of installation or stimulate domestic production in Europe.

Looking at the matter from the point of view of the Pomeranian region, it can be said that the blockage of the Suez Canal will certainly affect us. In addition, on various levels. First of all, for some time the Gdańsk DCT terminal will be unemployed in terms of servicing ocean lines, and it serves two such lines. After the end of the blockade, there will be an accumulation of ships, which will arrive practically at the same time and this will cause congestion in the port, and further, the massive displacement of imported goods will cause massive exports, or actually the need for them, because all of them cannot be handled with the same forces as before. Cargo will therefore be competing with each other for a limited number of places on trains or space on trucks. On the export side, on the other hand, this situation will cause clogging of storage yards, buffer car parks, stopping exports, stopping payments in many cases to exporters - Polish entrepreneurs. This chain can be developed further. All together it will lead to visible increases in the prices of most goods. Especially as this accident is immediately accompanied by an increase in the price of crude oil, and therefore of fuel.

And if we add to this the current trend of weakening of the Polish currency against the euro or the dollar, we have the full negative scenario of a short-term economic crisis. The economy, however, like life, abhors a vacuum. Already several ships sailing from Europe to China and vice versa have diverted to the route around Africa. Perhaps this is the result of the knowledge that these shipowners have, especially as one of them is actually Evergreen, the owner of the ill-fated m/v Ever Given. This also gives room for speculation as to how long it will take to unblock the canal. It may not be a few days, but several weeks. So the multi-day alternative of circumnavigating Africa may prove to be accurate. Further, the decongestion itself will require many days, as the canal can be navigated in shifts, as the traffic there is unidirectional and has so far been operating at optimum levels both in terms of navigational efficiency and safety.

In conclusion, the current situation in the Suez Canal is and will be of great economic importance to us and will contribute to production disruptions and price increases.