The latest Suez crisis and the economic fallout
The latest crisis surrounding the Suez Canal appears to have come to a favourable resolution, avoiding a full-blown disaster. The world was watching with bated breath for almost 10 days, as the Suez Canal drama was playing out last week. A Japanese container ship, on its way from Asia to the Dutch port of Rotterdam, got stuck diagonally in the Suez Canal on March 23, 2021, and traffic on the canal came to a standstill. The ship Even Given was travelling north on the canal and turned right. Both its bow (the front) and the stern (the tail) hit the banks of the canal, leaving about 400 vessels stranded on the southern and the northern segments. A group of an international crew worked feverishly day and night to dislodge the container ship and succeeded in doing so on March 29 to refloat it. But the fallout is already starting to emerge. Some of the ships coming from Asia are going around the Cape of Good Hope to reach Europe. Others that were stuck in the Mediterranean turned around and are now heading for the Atlantic Ocean to reach the Asian destinations.
The rescue operation of Ever Given gripped the imagination of billions around the globe who were watching live on TV and the Internet as the leviathan, laden with 18,000 containers, was stuck for almost a week, and tugboats attempted to refloat it. The 1,312-foot, quarter-mile long, 200,000 metric ton container ship became the subject of wide-spread speculations. At one stage, Egypt's President, Abdel Fatah al-Sissi, stepped in and ordered a back-up plan, including preparations for removing containers from the vessel, according to news reports last Sunday.
The Ever Given episode reminded us of the story of Gulliver, who after a sea-borne disaster, found himself on the shores of the island country of Lilliput. In "Gulliver's Travels" written by Jonathon Swift, the protagonist finds himself in the midst of the tiny inhabitants of Lilliput, who tie him down with ropes and other types of fasteners on the beach to prevent him from leaving the seashore and causing harm to the 6-inch-tall humans. He is finally set free on the orders of the King of the Lilliput after promising not to hurt his subjects. Jonathon Swift claimed that he wrote Gulliver's Travels "to vex the world rather than divert it". It appears that Ever Given which was driven by strong winds and possibly human error to be beached on the shores of the Suez Canal managed to take our eyes away from the pandemic and the other problems we face every day.
The Suez Canal is a vital conduit for the global supply chain, with 51 ships passing through the canal each day. It is a 120-mile-long shipping link between the Mediterranean and Red seas that carries 10 percent to 12 percent of commercial shipping and about 2.5 percent of the world's oil. A German insurer said delays could cost global trade USD 6 billion to USD 10 billion a week, Reuters reported. According to another estimate, the total value of goods that move through the Suez Canal daily is over USD 9.5 billion. Lloyd's values the canal's westbound traffic at roughly USD 5.1 billion a day, and eastbound traffic at around USD 4.5 billion a day. The ship completely blocked the canal disrupting much of the world's seaborne trade and caused a traffic jam with hundreds of ships waiting to enter the Suez.
The Time magazine was not exaggerating when one of its headlines proclaimed, "A Massive Cargo Ship Stuck in Egypt's Suez Canal Is Imperiling Shipping Worldwide". While the Suez Canal is just a link between the Red Sea and the Mediterranean, it is also the quickest, and most economical path from Asia and the Middle East to Europe and the east coast of the USA. Ships that ply this route haul cars, oil, livestock, laptops, jet fuel, scrap metal, grain, sweaters, sneakers, appliances, toilet paper, toys, medical equipment and much more.
The current stoppages and delays have already cost billions of dollars to the traders that use it, the shipping companies, as well as the Egyptian Government in terms of lost fees. Lloyd's List calculates the blockage, lasting 6 days, was costing USD 400 million an hour. Jon Gold, vice president of supply chain and customs policy for the National Retail Federation, said last week, "Many companies continue to struggle with supply chain congestion and delays stemming from the pandemic. There is no doubt the delays will ripple through the supply chain and cause additional challenges."
Containers are already scarce in China and the backup in the Suez will further stress the inventory," explained Jon Monroe, maritime trade and logistics consultant with Jon Monroe Consulting. "We are back to a pre-Chinese New Year environment where factories are running at full steam and are struggling to find containers as well as space for their finished goods."
The Egyptian government spent USD 8 billion in 2015 to deepen the channels and modernise the canal in order to allow ships to travel faster and to facilitate larger oil tankers and container ships to pass through it. Unfortunately, it now appears that the government of Al-Sisi was ill-prepared for the crisis and had neglected some of the basic aspects of disaster preparedness, including mitigation strategies, according to scholars at the Abu Dhabi Institute. It is the high tide that finally delivered the punch that helped the ship aided by tugboats to pull itself free of the sands of Sinai!
My last visit to the Suez Canal from the Egyptian side was less eventful. I was visiting Egypt with my family and staying with a Bangladeshi diplomat. Originally, my itinerary did not include the Suez Canal. However, after visiting all the major tourist attractions, including the Pyramids, Aswan and Alexandria, we had two days left before our departure. And then, we went to a dinner at the residence of the Bangladeshi Ambassador to Egypt, Serajul Islam, whom we called Sabuj Bhai. He suggested we could take a day-trip to the Suez Canal. So, the following day we drove from Cairo to the western banks of the Suez and crossed the canal on a ferry. We saw some of the remnants of the many wars that Israel and Egypt fought since the nationalisation of the canal by President Nasser in 1956. During our visit, things were calm and we walked around on a balmy day with admiration for this man-made Wonder of the World.
Since the War in 1973, the canal has stayed out of news headlines. Every nation in the world has a stake in ensuring that traffic is flowing since it is considered "strategically and economically one of the most important waterways in the world."
Now that the immediate crisis is over, it is time to understand why it happened and how to prevent it in future. The chairman of Egypt's Suez Canal Authority said that weather conditions "were not the main reasons" for the grounding, and that "there may have been technical or human reasons". An investigation is ongoing. The ship's owner, the Japanese company Shoei Kisen, has been forthcoming and fully cooperating with all the parties involved in damage assessment and post-disaster investigation. For now, the 360 ships, carrying everything from cars to oil to grain, are heading cautiously towards the canal's northern and southern entrances. It is not clear how many ships that were heading for the canal have been diverted to the African route.
Dr Abdullah Shibli is an economist and has been working in higher education and information technology for 35 years in the USA and Bangladesh. He is also Senior Research Fellow, International Sustainable Development Institute (ISDI), a think-tank in Boston, USA.