How Did One Stuck Ship Hamper Global Trade?
Satellite imagery of the container ship Ever Given stuck in the Suez Canal. Image by Maxar Technologies.
On March 24 the container ship Ever Given ran aground and blocked the Suez Canal for nearly a week, causing potentially billions in lost trade while hundreds of other cargo ships motored in circles waiting for the canal to reopen. The ship is 1,312 feet long, and the canal is 985 feet wide, so when the Ever Given suddenly turned to one side and the bow ran aground on the east bank, the stern hit the west bank. What caused the ship to veer off course and wedge itself across the canal is still undetermined, but technical or human error and a sudden sandstorm could have contributed to the accident.
Teams operating dredgers and tugboats finally freed the Ever Given on the morning of March 29. By then, the ship and its predicament had inspired a frenzy of social media jokes and musings. But while the cultural spotlight is shifting away from the Ever Given, the global supply chain is still experiencing the effects of the unexpected canal closing.
The Well spoke to UNC Kenan-Flagler Business School’s Jayashankar Swaminathan, GlaxoSmithKline distinguished professor of Operations, on why a single ship blocking the Suez Canal was so impactful on trade and how the incident will affect the supply chain in the future.
Why is the Suez Canal important to the world economy?
Most production for European and North American companies takes place in the Far East, and there are only a few ways to transport those goods back and forth via ship: The Suez Canal is often the shortest and most convenient route; another route is around the Cape of Good Hope in Africa. There is a less convenient route through the Panama Canal as well. There is also significant flow between the U.S. and the Far East from the West Coast via the Arctic.
If the Suez Canal is closed, shipping times increase by at least 10 days around the Cape of Good Hope.
How significant was the blockage in the Suez Canal to the global supply chain?
The Suez Canal was blocked for at least six days. On a normal day 50 ships pass through the canal. Although a few ships decided to take alternate routes, most idled on either side of the canal waiting for it to reopen. While those ships waited, even more queued up behind them. I estimate it will take 15-30 days to fully clear that traffic and get back to normal.
We have to think about not only all the full containers on those delayed ships but also the empty containers being transported back to port. Not only will the shipments in those full containers be delayed, but shipments waiting to be loaded into containers and onto ships will be delayed as well because there will be a shortage of containers.
Europe will see more shipping delays and product shortages than the U.S. because the Suez Canal is their main shipping route, while U.S. ships coming from the Far East often use the West Coast route.
Was the Ever Given simply too big to sail through the Suez Canal?
This was a freak incident that isn’t likely to become a common occurrence, but it may cause ship builders to start thinking about if they want to build ships any larger, considering many canals around the world are narrow like the Suez. Increasing the capacity of the canal is a more likely outcome, but widening the canal is going to require great civil engineering and possible environmental damage.
Who is responsible for this incident, and will anyone be held liable?
That’s difficult to judge right now with the amount of information we have. It’s unlikely that the ship will be considered overloaded because it’s so large, but investigators will look at the ship’s “black box data” to understand if it was the wind, currents, technological malfunction, weight or poor steering that led to the crash.
Transportation providers guarantee shipping times based on normal conditions, but if the Suez Canal closes in an incident like this it could be considered “an act of God.” Manufacturing companies carry business continuity insurance that covers them if their raw materials are delayed, so it’s unlikely that anyone will be held liable unless the data convincingly proves who is responsible.
Will this incident change how the global shipping operates?
This was a freak accident, but if this starts to happen more frequently, then companies will start to think about alternate routes and transportation options. The Suez Canal has always been somewhat congested but still enables reasonable traffic flow.
If firms begin to use alternate routes, they will update the location and amounts of inventory storage in their global supply chain to compensate for the longer sailing times.
What is one takeaway people should remember?
While it was somewhat funny to watch this enormous ship basically take the Suez Canal hostage, people should recognize that while global supply chains are highly efficient, they are only as good as the weakest link. In this case, the weakest link was a narrow canal and a large ship.
March 13, 2023