The Suez Canal is free, but the impacts of the Ever Given will be felt for a long time

By Carla Adriana C Gibertoni Fregona, Lawyer and juridical consultant, Associate at Pádua Advogados, Master in International Relations at the University of Barcelona, Author of the book “Theory and Practice of Maritime Law”, Invited professor at post-graduation courses on Maritime, Port and Customs Law.

 

Recently, a huge container ship was wedged in the Suez Canal for almost a week. The 1,300-foot-long, 219.000 tons, container ship prevented hundreds of other vessels from using the Suez Canal, one of the most important waterways in the world, after being deviated from its normal route due to strong winds.[1]

The giant Ever Given container ship, owned by a Japanese firm, operated by a Taiwanese shipper and flagged in Panama, is no longer blocking the Suez Canal. But the consequences for international trade and supply chains will likely for last much longer.

The blockage has been the source of much worry and frustration for the global shipping industry. After all, these are tough times for transport, supply chains and business leaders who depend on them. Brexit. The pandemic. The congestion at major ports.

The Ever Given left more than 400 vessels, carrying everything from crude oil to cattle, piled up on either end of the canal as they waited for the stranded container ship to be refloated.[2]

Recent months have seen a significant spike in global freight rates as both production and consumption rebounded from their pandemic lows as the global economy began to recover

That means any delays will come at a higher cost.

The delays elevate costs even more, besides diminishing the offer of available vessels. These factors shall pressure maritime freight, generally increasing the price of products which are carried by sea.

The Suez Canal is a vital maritime passage for the global supply chains across the world. But it is not the only one. One of the alternative routes, which goes around the Cape of Good Hope, takes almost nine days more. As such, the crisis has forced companies to choose between waiting or rerouting vessels around Africa, which adds a huge fuel bill, 9,000 kilometres (5,500 miles) and over a week of travel to the trip between Asia and Europe.[3]

Some goods on the delayed ships may also now be spoiled or time-constrained and could thus be rendered worthless. On the other side, insurance and legal claims from companies whose vessels have been delayed and whose shipments have been disrupted are likely to rumble on for some time to come.

Evidently, the cause will impact upon the legal liabilities of the ship and cargo interests. The expenditures which will befall over the vessel owners and insurance companies include the loss of revenue associated to the ship’s cargo and the losses of other vessels whose passage was rendered impossible by the incident.

Europe shall be the region that will feel the strongest impact due to the blockage of the canal. Companies located in Asia will be impacted not only by the delay of shipments from Europe, but also by a shortage of empty containers returning to their region.

The Suez Canal blockage does not only affect the global shipping industry or the Egyptian economy – countless businesses are also impacted.

Among those, the fuel sector, as the Suez Canal is an important route for oil barrels coming from the Middle East.[4] Other diverse sectors shall be affected, as the products transported through the Suez Canal vary from grains to baby clothing and sport articles and even surgical equipment.

In Brazil there is concern regarding refrigerated containers, which transport meat, fruit, pharmaceutical products, among others.

If corporate officials needed to be reminded about the importance of preparing or updating their crisis management plans in these uncertain times, the headlines about the stranded ship should be enough to make their plans a top priority, whether they rely on logistic supply chains or not.

The Suez Canal incident gives us a huge reason for businesses to invest in data and technology to create an agile, geographically dispersed logistic supply chain that can quickly pivot during unexpected events.

While considerable attention has been given to the economic value of the cargo trapped on vessels and their inability to move through the Suez Canal, the financial impacts on downstream production which depends on the timely delivery of these materials is magnitudes greater. For instance, who would imagine that the delay of a cheap, but essential automotive part, en route from China, can prevent the sale of an entire vehicle in Germany?

The ship came out intact and it has no problems.

While the incident may have been a unique one, that was difficult for anyone to predict, the consequences on global shipping should be evaluated. After all, with few routes for transporting goods around the world, Suez is going to be around for a long time.

 

[1] Available at: https://www.noticiasaominuto.com/mundo/1718563/canal-do-suez-interrompido-ha-tres-dias-sem-estimativa-de-desbloqueio. Accessed: 07/04/2021

[2] Available at: https://noticias.r7.com/internacional/congestionamento-de-navios-no-canal-de-suez-termina-apos-5-dias-03042021. Accessed: 06/04/2021

[3] Available at:

https://www.bbc.com/portuguese/internacional-56601306. Accessed 06/04/2021.

[4] Available at: https://economia.uol.com.br/noticias/redacao/2021/03/26/navio-encalhado-ever-given-canal-de-suez-efeitos-brasil.htm. Accessed: 07/04/2021.