March 26, 2021
21:04
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The blockade of the Suez Canal by the stranded container mastodont Ever Given is the last straw that overflows the logistics bucket of already overheated global trade. Every week without transit costs 6 to 10 billion dollars. ‘The exports of Belgian companies are also at risk.’
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On Sunday, an attempt will be made to detach the ship that is blocking the Suez Canal. It will then be spring tide, making the water level half a meter higher than the normal high tide where the ship was stranded on Tuesday. ‘That will be a crucial day for world trade,’ says Theo Notteboom, professor of maritime economics and logistics at the University of Antwerp. ‘If it doesn’t work then it doesn’t look so good, because then the ship will have to be excavated. That will take much longer. ‘
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What does that mean for global logistics?
The blocked ships have only two options: wait for the Suez Canal or sail around Africa. The latter takes up to two weeks extra. According to Notteboom, the online tracking platform marinetraffic.com already showed on Friday that more and more ships are choosing that route.
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The decision to take the Africa Route depends on many more factors than just the additional cost of the extra days at sea – $ 210,000 to $ 360,000 for fuel alone. ‘The decision was made faster for fruit and vegetables in refrigerated containers,’ says Jacques Vandermeiren, the CEO of the port of Antwerp, ‘because they are perishable and the cooling costs a lot of energy. Also companies that work according to the just-in-time principle (A part only arrives when it is needed, ed.) delays can be costly. ‘
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According to Marc Beerlandt, the CEO of the Belgian branch of the container shipping company MSC, ships sailing from east to west will make a decision at Colombo, the capital of Sri Lanka (south of India).
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The essence
- Large traffic jams are expected at European ports.
- The costs of the extra days at sea on the route via Africa are 210,000 to 360,000 dollars for fuel alone.
- For every week that cannot be sailed, a ripple effect of three weeks is expected.
- Every week at a standstill in the Suez Canal, world trade costs $ 6-10 billion.
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Beerlandt expects a ripple effect of three weeks for every week that cannot be sailed. The group has some 560 container ships in service, of which about ten are currently trapped around the Suez Canal. Even if the ships can sail again and arrive at their destination, it is not over. There will be enormous traffic jams for the Western European ports. That will lead to chaos again. And the container terminals are already unable to follow. ‘
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‘Container ships normally follow a fixed sailing schedule’, Notteboom explains. ‘But under pressure from major customers such as Ikea or Nike, they will want to unload as quickly as possible, in any European port. But the containers in such a ship are loaded according to an ingenious system. In the Asian ports of departure, the order in which they are unloaded weeks later in the – usually three to five – Western European ports is already taken into account. If you change something to that scheme, the house of cards collapses. The result is chaos in the ports. ‘
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A perfect storm is coming. Container traffic is normally hyper-efficient because it is planned so well. But if there is a hitch, you risk chaos.
Jacques Vandermeiren
CEO Port of Antwerp
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Vandermeiren confirms this. He speaks of a ‘perfect storm’. ‘Everything comes together. Container traffic is normally hyper-efficient because it is planned so well. But if there is a hitch, you risk chaos. So much volume of containers will converge on the quays that the transhipment companies will be unable to process. It will be all hands on deck, with extra shifts, day and night. ‘
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In addition, many containers will end up in the wrong port. As a result, they will still have to be transported from, for example, Le Havre to Rotterdam. “That will result in an explosion in road transport,” predicts Vandermeiren.
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How badly does that harm world trade?
The French credit insurer Euler Hermes calculated that every week of standstill in the Suez Canal costs world trade 6 to 10 billion dollars. In 2019, 19,000 ships passed along the canal, carrying about 1.25 billion tons of cargo, accounting for 13 percent of world trade. According to the maritime engineering firm Lloyd’s List, every day disrupts the transport of goods worth $ 9 billion. That would take 0.2 to 0.4 percentage points of annual trade growth.
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The big problem is that the blockade of the Suez Canal is on top of the massive disruptions that have been going on since the beginning of this year, causing shortages of chips and raw materials.
Theo Notteboom
Professor of maritime economics
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“The big problem is that the blockade of the Suez Canal is on top of the enormous disruptions that have been there since the beginning of this year, including shortages of chips and raw materials as a result,” says Notteboom. The Ever Given is the straw that makes the bucket overflow. Since the beginning of the year, supply chain disruptions have cost world trade 1.4 percentage points in growth, or roughly $ 230 billion, according to Euler Hermes.
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What does that mean for Belgian companies?
In the shops it will take a while before the consumer will feel an effect, but at the companies it is a matter of weeks. Beerlandt: ‘They depend on the empty containers in Western European ports for their export. But there are none now. The result: goods remain in warehouses or in the ports. ‘
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The effect can also be felt in the opposite direction. The textile company European Spinning Group (ESG) relies on fibers and yarns from the Far East for its production. “An order is stuck in one of the ships in a traffic jam on the Suez Canal,” said Julie Lietaer, CEO of ESG. “Fortunately we still have a few weeks of stock.” The Belgian car sector (Audi and Volvo), on the other hand, works according to the just-in-time principle, whereby hardly a buffer stock of parts is kept.
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Is world trade reaching its limits?
‘Absolutely’, says Notteboom. ‘There is enormous economic concentration at ten shipping companies, which are themselves grouped into three alliances. Their ships are also getting bigger. This increase in scale keeps freight rates low, but offers very little flexibility. That is why there are more and more voices to move away from production in Asia and to switch to ‘onshoring’, the return of production to the West. ‘
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