Evergreen Incident: The Economic Impact of a Suez Canal Blockage
The Suez Canal is one of the most economically important waterways in the world. However, in March 2021, a huge ship got stuck inside and blocked the canal. The Suez Canal Blockage was one of the most talked-about issues of the year because of the economic impacts it had on international trade.
The impact, however, was not limited to only a specific part of the world. So, you might be interested to know more about the economic impacts of the crisis.
In this article, I will go over the different impacts of the Suez Canal blockage on the economy, along with some other information that you might find helpful.
What Are the Impacts on the Economy of The Suez Canal Blockage?
Since the Suez canal is a part of one of the most important routes of global trade, there were significant impacts on the economy due to the blockage. Now, without any further ado, let’s discuss the economic impacts of a Suez canal blockage:
Impact on the Freight Rates
Around 12 percent of world trade, comprising about 1 million oil barrels, as well as approximately 8 percent of LNG, passes through the Suez canal every day. As a result, worldwide prices for essential commodities such as natural gas and crude oil have risen in anticipation of the blockade lasting longer than a few weeks.
According to Allianz, the barrier may reduce yearly international trade growth by about 0.2–0.4 percent. According to an index in Freightos Data, freight charges on East Asia towards the Mediterranean route increased by 500 percent in March 2021. It indicated a decreasing trend in comparison to February.
Similarly, maritime freight charges on the Mediterranean to East Asia path increased by 278 percent in March 2021.
Impact on Manufacturing Sector
Aside from consumer items, a lengthy blockage situation threatened the manufacturing sector. The fundamental reason for this is that the companies send numerous materials throughout the world in the very same manner as consumer products.
When manufacturing materials are postponed, production can be slowed or stopped, given the delay period. So, the Suez canal blockage negatively impacted the international economy as a whole. It had a short-term impact on GDP, output, and productivity.
Impact on Different Industries
Well, the Suez Canal blockade affected the worldwide shipping sector. Furthermore, it also impacted a wide range of industries, from domestic transportation providers to shops, manufacturers, and supermarkets.
Shipment delays had the greatest impact on European businesses, with Germany, the UK, Belgium, the Netherlands, France, Switzerland, Italy, Spain, Austria, and Turkey among the worst-affected countries.
The delays in shipping from Europe also affected the companies in Asia. And, a lack of containers coming to the area, further delaying their ability to deliver products. The blockage impacted several European industries greatly. Some of them are:
● Chemical industries.
● Food retailers.
● Health services.
● Wholesales trade.
● Metal production.
● Equipment and machinery industries.
Companies have grown increasingly reliant on third parties, as well as suppliers from several other nations. This reliance is underlined whenever a supply chain link is affected.
Impact on Supply Chain
The stranded Ever Given Ship prompted the stoppage of traffic via the Suez Canal. As a result, it has also caused anxiety throughout the supply chain. It fueled concerns of a fresh congestion catastrophe inside the terminal and port industry, notably in Europe.
Since the canal handles most of the trade among Asian and European countries, the blockage greatly affected the global supply chain. The blockage postponed ships standing at anchor in reaching European ports. Thus, the worldwide supply system had to suffer severe harm as a result of the situation, posing further economic issues.
The Suez Canal blockage will have the greatest impact on manufacturers of technology companies and rugged computers generally. Whenever it is about generating tech components, particularly semiconductors, Asia seems to be the global leader.
So, because of the blockage there arose a worldwide shortage of semiconductors. Then there was also the container scarcity and the port traffic. Thus, the supply chain got under a great deal of stress.
First of all, the rugged sector had to wait for such hard-to-find semiconductors. Then, even though they got those, they will face difficulty in getting empty containers. Furthermore, after getting the containers, the shipment might be stuck in the Canal. As a result, all of these problems together had a huge impact on the global supply chain.
How Much Did Suez Canal Blockage Cost The World Trade?
According to Osama Rabie, Chairman of SCA, the Suez canal blockage impacted the Canal’s income by 14 million to 15 million dollars per day. The canal blockade has wreaked havoc on the economies of several countries in the east and west sections of the globe.
Well, the Suez Canal blockade cost around 12 percent of world traffic and was halting cargo worth more than 9 billion dollars each day. This works up to 400 million dollars in trading every hour, or 6.7 million dollars each minute.
The overall trade loss was around 54 billion dollars since the ship closed the tiny channel for 6 days. This statistic, however, only accounts for cargo shipments, which were suspended or postponed as a result of the blockade.
The true economic cost to nations around the globe might be far greater. It is because the prices of key commodities such as gas and crude oil soared amid fears that the blockade would last for weeks.
Moreover, as I have mentioned earlier, Allianz predicted that the blockade would reduce international trade progress by 0.2–0.4% every year. If you take into account expenses like extra shipping operating fees, commodity pricing, and shipment delays, the financial damage as a consequence of the blockade is going to be considerably greater.
Suez Canal blockage not only impacted different industries and freight prices but also affected the global supply chain to a great extent. Luckily, the blockage remained only for 6 days. Otherwise, the impacts on the economy could have been a lot more severe. Thanks for reading through. Hopefully, you’ve found this article helpful. Have a great day!