Suez supply jolt: Global economy 'hangs in balance'

(MENAFN - Gulf Times) The 400m-long, 220,000-tonne Ever Given, which was wedged in the Suez Canal, blocking off all traffic, has finally been freed.  But the impact of the nearly a week of blockage may be felt quite longer in the global economy, not to mention the shipping industry. On the face of it, call it a freak accident involving a giant container ship. But for the global economy, hanging in the balance daily is about $10bn in commodities, industrial inputs and consumer products on ships that ply the canal, with supply-chain fears directed mostly at Asian exporters and European importers.  According to an Allianz Research report, each week of no traffic through the Suez Canal could dent global trade growth by 0.2 to 0.4 percentage point.  Even before the Suez incident, supply-chain disruptions since the start of the year might trim 1.4 percentage points from trade growth about $230bn of direct impact, Allianz said. The Suez Canal, the 193km man-made waterway, cuts through Egypt to connect the Mediterranean Sea to the Red Sea, and by extension the Atlantic and Indian oceans.  That makes it a key transit point for ships moving goods between Asia and Europe and the eastern US. The canal is so important to world trade that global powers have fought over it since it was completed in 1869.  About 12% of world trade passes through the canal each year, everything from crude oil to grains to instant coffee.  Without Suez, a supertanker carrying Mideast crude oil to Europe would have to travel an extra 6,000 miles around Africa's Cape of Good Hope, adding some $300,000 in fuel costs. Lloyd's List estimates that more than $9bn worth of goods passes through the waterway each day, translating to around $400mn per hour. International trade in goods has been a rare bright spot over the past year, and returned recently to pre-pandemic levels.  That's the danger with the latest supply shock; it could further fatigue already strained networks of ships, ports, trains, trucks and warehouses. Caught in the turmoil are about 6,200 container ships that carry more than 80% of merchandise trade. Dominated by about a dozen companies based in Europe and Asia, they're already operating at full capacity and charging record-high rates. In the short term, the added stress on trade will translate into higher transportation costs, tighter supplies, and more delivery delays. Longer term, it may force a rethinking about the dangers of too much globalisation and of supply chains exposed to too much unforeseeable risk. Overestimating those dangers might be a mistake, though, says Robert Koopman, chief economist of the World Trade Organisation. He sees the Suez situation as another test that the global economy will battle through in the weeks ahead, but will ultimately pass. In a wider sense, the cost of the Suez Canal blockage needs to be assessed vis-a-vis doing business in today's interconnected global economy.  Be it a winter cold snap in Texas that snarls production of petrochemicals, container shortages on Transpacific trade routes, or a fire at a chip-making plant in Japan; disruptions do happen with a global impact.  And companies ought to adapt.MENAFN30032021000067011011ID1101836092