History Of Suez Canal, Its Significance In Global Maritime Trade And The Impact Of Its Blockage
The Suez Canal is making headlines for a bizarre reason. A single ship has caused a massive traffic jam which has threatened the entire global maritime trade.
That is because the Suez Canal where cargo ship Evergreen ran aground on Tuesday is one of the busiest global trade routes.
About 10% of all global trade flows through the 193-kilometer-long canal, which allows tankers and container ships to avoid a long trip around the southern tip of Africa.
$9.6 billion losses estimated
The iconic shipping journal Lloyd's List estimates that goods worth $9.6 billion passes through the canal every day. Lloyd's says about $5.1 billion of that traffic is westbound and $4.5 billion is eastbound.
About one-fourth of that traffic is on container ships like the one that is currently burrowed into one sidewall of the canal. Lloyd's says more than 50 ships traverse the canal on an average day, carrying 1.2 billion tons of cargo.
History of Suez Canal
Constructed by the Suez Canal Company between 1859 and 1869, it officially opened on 17 November 1869.
For nearly a century the though the canal as such was the property of the Egyptian government, European shareholders, mostly French and British, owned the concessionary company.
Things changed in July 1956, when the then Egyptian President Nasser nationalized it.
Since it opened for traffic, the canal has only been closed twice, the first was in 1956 following the nationalization and lasted till 1957.
The second closure was in June 1967 during the war with Israel and lasted until 1975.
Now the Suez Canal is facing its third shut down in history, though it is unlikely to last longer like the two previous instances.
Even as the Egyptian authorities race against time to remove the Panama-flagged Ever Given, which is operated by Taiwan's Evergreen Marine Corp that became wedged sideways in the middle of the canal on March 23, it is believed that the entire operation could take days, if not weeks.
Ever Given which is 400 meter-long has blocked traffic in the canal, leaving dozens of smaller ships stranded in the Mediterranean and Red Seas.
Suez Canal Authority??
The Suez Canal Authority, which operates the waterway, has deployed several tugboats in efforts to refloat the massive vessel, including a specialised suction dredger that is able to shift 2,000 cubic metres of material every hour.
The canal authority said that they would need to remove between 15,000 to 20,000 cubic metres (530,000 to 706,000 cubic feet) of sand to reach a depth of 12 to 16 metres (39 to 52 feet). That depth is likely to allow the ship to float freely again, it said.
Heavy economic impact
The economic impact of Ever Green blocking Suez Canal runs into billions and can it can be felt across the globe.
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.
"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.
There will be less direct impact on the United States, which receives most shipments from Asia on the West Coast. Still, imports from Europe may be delayed, and the blockage will prevent empty shipping containers from being returned to Asia, adding to a container shortage caused by the rising demand for consumer goods during the pandemic.
"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.''
Mark Zandi, 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.
About 1.9 million barrels of oil a day go through the canal, according to Lloyd's. That's about 7% of all seaborne oil. The closure could affect shipments of oil and natural gas from the Mideast to Europe.
