On Tuesday (23rd), a super-large container ship got stuck on the "Eurasian artery" Suez Canal, blocking the world's most important maritime trade stronghold. Although the local government has done its best to organize rescue operations, the progress has been slow and unable to extricate itself from the predicament because the freighter is too large.
It is reported that the cargo ship "Changzhi" (English name: "EVER GIVEN") from Taiwan's Evergreen Group is a 220000-ton cargo ship, which is 400m long and can hold 20, 000 containers. It was stranded by strong winds when it entered Egypt's Suez Canal from the Red Sea, blocking this important hub horizontally.
Some analysts have warned that it could take days or even weeks for the long Gift to get off the ground. This is undoubtedly another "fatal" blow to the global supply chain, which accounts for 12 per cent of the world's seaborne trade, and 50 container ships pass through it every day. In the previous year, the novel coronavirus epidemic had caused serious delays, shortages and price squeezes.
"while we believe and hope that the situation will be resolved soon, there are still some risks," Morgan Chase strategist Marko Kolanovic wrote in a report on Thursday. In extreme cases, canals will be blocked for a long time, which could lead to serious disruptions in global trade, soaring shipping rates, a further increase in energy commodities and rising global inflation. "
Simply put, shipping delays may affect everything you order online, including clothes and shoes, fitness equipment, electronics, food and energy supplies, which means gasoline prices may also rise.
"Container jams on the Suez Canal will further disrupt the global supply chain and push up pricing as demand is suppressed," institutional analysts said. "
With a total length of 120 miles, the Suez Canal is an important transit station connecting the East and the West. Twenty thousand ships pass through here every year, transporting everything from oil and gas to machine parts and consumer goods.
Although it is not yet clear what the full impact of the congestion crisis will be, the agency predicts that in the short term, "the blockade may increase supply pressure on the industry. Previously, the novel coronavirus epidemic, port congestion and shortage of ships and containers have caused supply chain bottlenecks."
The agency also said that ships would have to turn to completely different routes, "which will lead to longer sailing times and further delays." The delays could be more than 15 days for many ships, most of whom choose the Cape of good Hope route at the southern tip of Africa, which analysts say will increase shipping time by as much as 30%.
"the direct impact of canal delays will focus on Eurasian trade, adding delays to disrupted supply chains and affecting the supply of oil and refined products," Joana Corning (Joanna Konings), senior economist at Dutch International Group (ING), wrote in a customer note on Wednesday.
It is clear that the congestion of the Suez Canal has affected oil prices. News of the Suez Canal blockade attracted buyers, according to Arctic Securities (Arctic Securities), and the one-month futures contract for Brent crude, the international benchmark, gained "the biggest one-day gain in nearly a year to close at $64.41" on Wednesday, along with other economic data.
At the same time, 5 to 10 per cent of seaborne oil is transported through the Suez Canal, which means that for every day the ship is stranded, another 3 million to 5 million barrels of oil a day will be delayed. At the same time, the canal is also a transit point for about 8 per cent of the world's liquefied natural gas (LNG), and long-term disruptions could affect gas flows mainly to the European market.
However, petersutherland, president of Henrietta Resources, an energy investment firm in Houston, said any price impact could be short-lived. "this will not have a lasting impact on oil prices, but it will help to provide support ahead of OPEC meetings," he said. "
Like both sides of the same coin, canal congestion is not bad news for everyone. Market watchers believe that due to pent-up demand, spot rates will be higher, bringing more profits for shipping companies.
"the prolonged closure of the Suez Canal will make container shipping the biggest beneficiary, while tankers, dry bulk and air freight may also have some higher rates," JPMorgan wrote, describing the tightening as an "upside risk".
Who benefits the most? The agency believes it is an Asian route and says that despite higher fuel costs due to longer diversion times and increased traffic congestion, the bank expects spot rates to rise: "in our view, this will not hurt profitability." on the contrary, it is expected to bring benefits to Asian routes.
Similarly, Bank of America agrees. "the closure of the Suez Canal for a few weeks will have a positive impact on spot rates, increasing voyage by 20% to 30% by bypassing the Cape of good Hope, effectively reducing supply," analysts at the bank wrote in their latest report. "
Meanwhile, Torbjorn Soltvedt, chief analyst at Verisk Maplecroft, a global risk and strategy consultancy, said the blockade of the Suez Canal "will increase the already rising risk premium for oil and oil products in the Middle East" and the risk of attacking oil facilities in the face of regional tensions.
He warned that the uncertainty about the duration of the blockade "creates a window of opportunity for State and non-State actors to maximize the impact on oil tankers and energy infrastructure shocks in the Persian Gulf and the Red Sea."
Most analysts expect the situation to be resolved within this week. But Bank of America wrote on Thursday: "if other moths or hull damage occurs, the interruption time may be prolonged." When the traffic is finally clear, ships will arrive at the port behind schedule, causing more congestion. "
However, the bank also wrote, "A few days of congestion is basically manageable for the container shipping industry, but may involve additional fuel costs as shipping companies speed up service to make up for lost time."
Finally, BofA pointed out that the whole incident highlighted the fragility of the trading network on which the world depends. "coupled with the recent attacks on Saudi facilities, this is a reminder of many loopholes in the global oil and gas supply chain".
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