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Transportation

Blocked Suez Canal raises new threat to global supply chains

Crude prices gain as crucial world shipping choke point is cut off

A lone excavator works to dislodge the Ever Given container ship at the Suez Canal Wednesday. (Photo courtesy of Suez Canal Authority)   © Kyodo

CAIRO -- The fallout from one of the world's largest container ships getting stuck in the Suez Canal has disturbed commodity markets and threatened to damage an already distressed global supply chain.

The Ever Given, the 400-meter container ship operated by Taiwan-based Evergreen Group, became stuck sideways Tuesday in one of the world's busiest shipping arteries, choking off the shortest shipping route from Asia to Europe. Egypt's Suez Canal Authority blamed the incident on low visibility from a sandstorm.

Eight tugboats were still at work Wednesday trying to dislodge the vessel. The effort to reopen the canal will take at least two days, The Associated Press reported, but the time it will take for full recovery remains an open question.

Nearly 19,000 vessels passed through the Suez Canal last year, according to the canal authority, or more than 50 ships a day.

About 12% of world trade by volume passes through the canal, including large volumes of crude oil and natural gas. Not only do tankers travel north from Persian Gulf countries to Europe, many vessels carrying Russian energy resources travel south through the canal bound for destinations in Asia.

The Ever Given was hit by strong wind and ran aground in the Suez Canal.   © Reuters

The Sumed pipeline, with one terminus at the Suez Canal, handles 9% of the oil transported globally, and 8% of the liquefied natural gas, according to the U.S. Energy Information Administration.

Ships have backed up at both ends of the Suez Canal, according to data from ship tracking sites. A delay of a few days would mean an extensive amount of time before traffic returns to normal.

If the process to reopen the waterway lags, ships are left with two options: sit and wait at the mouth of the canal or travel thousands of kilometers around South Africa's Cape of Good Hope. The latter choice would delay the arrival of cargo by about a week.

A satellite image shows the stranded ship in the Suez Canal. (Photo courtesy of Planet Labs via Kyodo)   © Kyodo

The oil market has reacted markedly. Futures for Brent crude oil, an international benchmark, jumped 3% at one point Wednesday due to concerns of tighter supplies. In New York, crude futures for May deliveries climbed 5%.

Shares in the global shipping leader, Denmark's A.P. Moller-Maersk, dropped more than 9% Wednesday compared with Monday's close. Meanwhile, investors bought currencies of resource-rich countries, such as Canada and Australia.

Companies in affected industries, such as energy and logistics, and government bodies are racing to gather information on the situation and gauge the likely damage. Oil analytics company Vortexa says the blockage could affect 10 tankers carrying a total of 13 million barrels of crude oil, according to Reuters.

"Tankers carrying Saudi, Russian, Omani and U.S. oil are waiting on both ends" of the canal, TankerTrackers.com, a service that tracks oil shipments, said on Twitter.

Shipping volumes have bounced back globally since the beginning of the year. Combined with a widespread shortage of containers and long waits to unload cargo in the U.S. West Coast, shipping rates have soared in recent months.

The Baltic Exchange Dry Index, a key indicator for shipping rates, had jumped 38% from the end of February to 2,319 as of Monday -- its highest since September 2019.

Shipping companies have not yet accounted for the possible impact of the Suez blockage in their rates. But the incident could stretch logistics providers even thinner and destabilize the shipping market.

Global supply chains are already under pressure from a range of factors, from a shortage of semiconductors to the deep freeze and large-scale power outage in Texas. Toyota Motor has halted a plant in the Czech Republic for 14 days starting Monday, and Ford Motor announced that production losses in the U.S. and Europe could dent its full-year pretax income by up to $2.5 billion. A protracted disruption at the Suez Canal could throw a further wrench into the global economy's recovery from the effects of the coronavirus pandemic.

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