Reflections of the blockade of the Suez Canal by the ship Ever Given

On March 23, 2021, the ship Ever Given, a freighter of approximately 220 thousand tons and 400 meters in length, ran aground in the Suez Canal after a gust of wind, blocking it for six days. The incident caused major naval congestion, leaving hundreds of vessels stuck on both sides of the canal, waiting for the problem to be resolved.

The cost of sea freight, already shaken by the coronavirus pandemic, which generated disruptions in the normal flow of trade due to lockdowns, has increased again [1]. The prices of export products were also directly impacted, due to market speculation in view of the uncertainties caused by the incident.

The repercussion of the fact is due to the importance of the Suez Canal, which stands out as one of the most used maritime routes for the transport of goods and raw materials. The canal, currently controlled by the Egyptian government, connects the Red Sea to the Mediterranean Sea, allowing transport between Asia and Europe without having to bypass Africa, thereby reducing travel time and costs. About 12% of global trade, 1 million barrels of oil and 8% of liquefied natural gas pass through it daily [2].

In other numbers, it is estimated that 50 vessels pass through the canal every day carrying around 9.5 billion dollars worth of goods. According to the Suez Canal Authority (SCA), the daily loss of the blockage would be around 14 to 15 million dollars. In addition, German insurer Allianz estimated that the blockage could cost global trade between 6 billion and 10 billion of dollars a week and reduce annual trade growth by 0.2% to 0.4% [2].

In view of this, the efforts to unseat the ship and free the canal as soon as possible were intense, in order to curb the increase in losses. Backhoe loaders and dredging equipment were used to remove sand from the shore and tugs boats were used to pull Ever Given. In addition, it was necessary to remove part of the vessel’s weight to facilitate the operation, which lasted six days.

The news that the ship floated again led to a drop in oil prices, which had increased due to the incident. However, the normalization of traffic on the canal occurred only on April 3, so the value and availability of products around the world continued to suffer from the effects of the blockage [3].

Several contracts were affected by the incident due to the delay in the delivery of goods or, also, by the increase in expenses due to the need to use an alternative route or means of transport. Egypt’s economy was also directly impacted by the blockage, as the canal is an important source of income for the country.

Faced with this scenario, the Japanese company Shoei Kisen, owner of the ship Ever Given, may still have to pay damages to the ships that had their trajectory interrupted by the blockage, as well as to the owners of the goods that were being transported. It is also necessary to reimburse the expenses with the ship’s unstacking and to pay for the damage caused to the canal.

The Egyptian State demanded, as compensation for the losses and damages resulting from the blockage of the canal, the amount of 1 billion dollars for the release of Ever Given, which is being while the cause of the incident is being investigated. In addition, some companies have already filed orders with insurance companies in order to obtain reimbursement for the losses suffered due to the delay or the loss of products due to the blockage of the canal [4].

References:

[1] Available in: https://www.cnnbrasil.com.br/business/2021/03/27/navio-encalhado-aprofunda-caos-na-navegacao-e-impacto-pode-chegar-ao-seu-bolso Accessed on April 13, 2021.

[2] Available in: https://www.bbc.com/portuguese/internacional-56571732 Accessed on April 13, 2021.

[3] Available in: https://www.poder360.com.br/internacional/canal-de-suez-normaliza-trafego-5-dias-depois-de-liberacao-de-navio/ Accessed on April 13, 2021.

[4] Available in: https://noticias.r7.com/internacional/egito-exige-r-57-bi-para-liberar-navio-que-parou-o-canal-de-suez-12042021 Accessed on April 13, 2021.