The week-long closure of the Suez Canal will continue to weigh on the economy despite the massive container ship that has been stuck there finally being freed on Monday, experts said.
Ever Given, the giant ship that has blocked the highly-trafficked waterway since March 23, was pulled free on Monday, marking a major step toward getting one of the world’s most important trade arteries moving again.
The blockage had cost nearly $10 billion a day in global trade, placing stress on supply chains already stretched thin during the coronavirus pandemic. Based on rough calculations by maritime intelligence company Lloyd’s List, the closure blocked about $400 million in goods every hour. In total, it impacted about $5.1 billion a day in westbound traffic to Europe and $4.5 billion in daily eastbound traffic.
While long-term impact of the weeklong closure will likely be small given that global merchandise trade amounts to $18 trillion a year, the blockage has caused a bottleneck by throwing ships off schedule. Some 450 ships carrying cargo are now expected to be delayed in reaching their final destinations for weeks, if not months.
Companies from Ikea to Caterpillar have been affected, as well as tens of thousands of live animals, mostly sheep, have been stuck on ships in the area. Consumer goods like coffee, oil, toilet paper and even a massive shipment of sex toys have also been caught up in the jam.
The dozen or so container carriers that control most of the world’s ocean freight are already charging record-high fees on some routes amid shortages of everything from chemicals and lumber to dockside labor, Bloomberg reported.
“The dominoes have been toppled,” Lars Jensen, chief executive of SeaIntelligence Consulting in Copenhagen, wrote on social media. “The delays and re-routing which have already happened will cause ripple effects” will be felt for several months.
Over the course of the week, Egyptian authorities have been desperate to get traffic flowing again through the canal, which is a channel for about 12 percent of world trade and about 1 million barrels of oil a day. This has been the canal’s longest closure since it was shut for eight years following the 1967 Six Day War.
Douglas Kent, executive vice president of strategy and alliances at the Association for Supply Chain Management said that even though the ship is dislodged, the economic impact of the blockage will be hard to quantify.
“The whole knock-on effect through the multi-hierarchy of the supply base — we’re not going to know that,” Kent told CNBC. “Companies don’t have visibility into their supply chain.” While a company might know it has a product sitting on a ship that’s stopped, the impact of delays down the line are unknown.
Fitch chief economist Brian Coultron told The Post that while the Suez Canal debacle won’t likely have a material impact on gross domestic product, but it may put pressure on global inflation.
He said the rising price of oil and other commodities is already impacting pricing, and that the Suez Canal incident is “exacerbating all that.”
“We’re going to see headline inflation rates pick up quite sharply in the US,” Coultron said, noting that the the uptick will be determined by when navigation can return to normal in the canal.
“If things return to normal by the end of the week, I don’t expect a major impact,” he concluded.