A blockage of the Suez Canal that began a couple days ago is forcing ships to consider an expensive trip around Africa’s cape. A normal trip from the Suez to Europe typically takes around 11 days but rerouting and going around could add an additional 26 days to the trip and could cost about $30,000 a day or $800,000 for the whole trip. The other option is just waiting out the jam in the Suez canal which could cost anywhere from $15,000-$30,000 per day depending on the ship and the company.
One of the biggest container ships, the Ever Given, has been stuck horizontally in the canal because of high velocity winds that pushed the ship. (pictured above). This blockage of the canal has posed huge financial and safety concerns for the ships and the people transporting these goods. The Suez Canal is one of the main canals in the global shipping industry along with the Panama Canal, so this shutdown has shut down trade and has cost a lot of money for buyers, transporters and major companies. The canal’s shutdown has stopped almost 15% of the world's container shipping capacity.
Some tankers may be holding 9.8 million barrels of oil which amounts to about a tenth of our daily global consumption. Many industries are relying on shipping parts and finished products and more than 200 ships are stuck in the canal and there is no estimated time of fixing the issue. An additional 80 ships are scheduled to arrive at the Canal within the next few days and more ships are still on route trying to decide whether or not they should wait out the shutdown or take the long trip around the continent.
For some ships that are coming from Asia heading towards Europe the alternative route requires them to go through an area of Somalia known to be filled with piracy. For some ships this poses no threat, those are ones with extreme security teams but this route is not an option for smaller ships who are subject to robberies. Not going through Somalia adds another three days to the trip which could cost an additional $90-100,000. Africa’s southern tip has different weather and currents which if not made aware of the difference could lead to unpredictable outcomes. The cape is known as “the cape of storms.”
The blockage and the problems created by the stopped ships is an example of supply and demand. Companies have to chose how much time, money and resources they want to put into these ships and figure out how much they are willing to do supply their buyers with products. Each scenario has different inputs, all with the same output but how long that output takes is the question.
If you were put in this position, would you wait out the blockage or would you take the chance of going around? What other financial and safety implications could arise from either scenario?
https://www.nytimes.com/2021/03/26/business/suez-canal-blocked-ship.html
https://www.independent.co.uk/news/world/middle-east/suez-canal-blocked-ship-cargo-b1822703.html
https://www.bbc.com/news/business-56533250
4 comments:
If I were in this position, it would depend heavily on the security of my ship. If on a smaller ship, as Ashley explained, I would likely have too low of a defense force to risk going through seas with piracy. On the other hand, if I were driving a larger ship with sufficient security and weapons, then I would likely choose to go around the blockage. With no estimate of how long the ship will be stuck there, I would rather make the immediate decision to go around it rather than waste more time waiting there. Waiting also poses other risks such as getting stuck along with many other ships and further crowding the canal. In terms of the financial problems that would arise from this situation, it would definitely cost more to get around, as gas more would be needed to make the extra trip. However, I would still do this because if I were to wait a few days, realize the blockage is taking much too long to be fixed, and then make the trip, I would end up paying much more than if I were to have just made the trip initially.
Luckily, it looks like salvage teams were able to free the ship blocking the canal within the last 24 hours; with a few hundred vessels waiting to pass through this past week and the supply chain getting backed up, I’m interested to see what, if any, significant long term effects of the blockage might be. In the short term, I think there are clear implications on the supply-side aspect of the market—with goods being prevented from reaching vendors (or manufacturers for further production), the short term supply of affected goods would decrease until the backup is mitigated, which would most likely temporarily raise prices to offset the profit being lost. With the blockage clearing, the expectation of the pressure on supply alleviating would contribute to dropping the prices back down, as we’ve seen with the drop in oil prices in the past day. I think the final couple of questions that you brought up also relate to the idea of trade-offs; while there would be extra fuel costs, ships that were trying to decide whether or not to turn around and travel the long way had to consider the fact that there was no guarantee to when the blockage would be fixed; ultimately, those who decided not to wait probably felt that there was more to lose by not going around.
If I was in this position I would try to go around the blockage to try and prevent the blockage from getting worst or cause any more delay with consumer goods. I think the most effective and efficient thing to do would go around, to not only prevent other ships from getting caught up in the blockage but also so that more money would be saved. This blockage costs many companies a lot of money because their products were not being shipped, and people were not getting their packages, etc. Although this method would still indeed cost a little bit more, it is a better price to pay compared to what could have happened if more ships just waited. Problems like more blockages which would cause more money to be spent. The finical problems that could arise from this would be the products lost, or waited on could cost the companies money, along with the extra fuel/gas that would be needed to have the ship go around any blockages.
If I were put in this position, I would take the chance of going around. A short term implication would be the product reaching the vendors and how it will affect the market. This would mean that the supply of goods will decrease. I believe that the most effective way to deal with the matter is going around because it will be easier for other boats/ships along with save a lot of money. This approach will definitely cost more, but in the short run it will cost less and not having to deal with waiting days. With the blockage clearing, there will be more concern for shipment of products.
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