The cargo ship blocking the Suez Canal is holding up traffic that carries nearly $10 billion worth of goods every day, so a quick clearing of the logjam is needed at the moment to limiting the economic fallout. Efforts continued Thursday to dislodge the Ever Given container ship and restore traffic on the Suez Canal that connects the Mediterranean to the Red Sea and provides a shipping shortcut between Europe and Asia.
When it comes to shipping goods from Asia to Europe, there are virtually no alternatives such as rail or truck transportation, said Sharat Ganapati, an economics professor at Georgetown University. The blockage will delay a range of parts and raw materials for European products such as cotton from India for clothes, petroleum from the Middle East for plastics, and auto parts from China, he said.
“If you get a bump in one place, that is going to percolate through the system,” Ganapati said. “It is going to take a while to get things un-gummed up.
“The fact that you have the most pivotal node in the trading network being blocked is going to have important welfare effects around the world,” said Woan Foong Wong, an economics professor at the University of Oregon. The Suez situation could compound issues for a supply chain already under pressure from the pandemic and a surge in buying.
Virus-related restrictions have trapped crews on merchant ships. Congested ports have led to container ships anchoring off the California coast, unable to dock and unload their goods. Shortages of semiconductors and rare-earth elements have plagued manufacturers of cars and other consumer products.
“We have lots of things indicating a vulnerable supply chain at risk for disruptions, and now you put one more thing on top of that,” said Julie Swann, a logistics expert at North Carolina State University. Mark Zandi, the chief economist at Moody’s Analytics, said the canal blockage likely won’t have much impact on the U.S. or global economies unless it drags on for weeks or months.
It may push up oil prices, “but we are not talking dollars on the barrel, we are talking pennies on the barrel,” Zandi said. Germany’s economy could suffer, though, if the blockage delays the shipment of auto parts to that company’s large car manufacturers, Zandi said.
And Spain, Italy, and France could see higher gas prices because they rely on oil shipments through the canal, Ganapati said. Tankers using the Suez carry 8% to 10% of the world’s liquefied natural gas, according to research firms. Wood Mackenzie analyst Lucas Schmitt said only a few LNG shipments were near the canal when the blockage occurred.
“We don’t expect major bottlenecks unless the situation drags on,” Schmitt said. He added that the timing of the incident — it’s spring when LNG demand typically eases — means it will have less impact on prices than recent delays at the Panama Canal had. Those delays caused LNG shipping rates to surge, according to data from S&P Global Platts Analytics.