Hello everyone. I hope you all had an amazingly fruitful week last week and have recharged those batteries for the week ahead. And, in our time-honoured tradition, welcome to this week’s News, Views and Truths.
There has been plenty to talk about this week, but only one event covers all of the following: An impact on global trade, on global markets and how not to steer a ship.
The Evergreen, one of the world’s largest container ships, managed to get itself wedged in the Suez Canal and, effectively, has halted global shipping since this occurred last Monday. The Suez Canal handles around 12% of global trade, making it an essential point of passage. Each day of blockage disrupts more than $9 billion worth of goods, according to Lloyd’s List, which translates to about $400 million per hour.
Oil prices jumped on Friday, amid speculation that dislodging the ship could take weeks, with West Texas Intermediate crude futures and Brent crude each advancing more than 4%. Of the 39.2 million barrels per day of crude imported by seaborne methods in 2020, 1.74 million barrels per day passed through the Suez Canal, according to data from research firm Kpler, representing around 5% of total flows.
Hot off the press and genuinely as I am typing this, the giant container ship has been re-floated this morning and is being secured, maritime services company Inchcape said in a Twitter post. But in these early days, it remains unclear what the condition of the stranded ship is in and when the canal would be open to traffic, with Inchcape saying that “more information will follow once they are known.”
And, due to the significance of the man-made waterway on global trade, even once the ship is dislodged the impact will continue to be felt. Ships will arrive at ports simultaneously, creating new traffic jams, for instance. Cargo schedules created months in advance will need to be reshuffled, with ships now sitting in the wrong place.
We normally have about 50 or so ships a day going through the canal; at the moment there are around 300 ships backed up, which equates to an enormous traffic jam. It will take quite some time for the whole supply chain to get back to normal and that is going to have an impact on both manufacturers and retailers alike.
More importantly, there is a lack of visibility throughout the entire supply chain which may well create longer-term inflationary pressures. As highlighted during our 2020 investment webinars, the damage to supply chains, due to international pandemic lockdowns, will become a real term business risk that many global manufacturers will look to hedge, through the localisation of working partners.
The bottom line is that many companies do not have visibility into their supply chain and, while a company might know it has a product sitting on a ship that’s stopped, the impact of delays down the line is unknown.
But anyway, it seems like the end of the immediate saga is in sight; I’m just glad I wasn’t at the wheel…