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Economy

Suez Canal faces prolonged blockage, sparking fear for exporters

Ever Given operator seeks new plan to dislodge massive containership

Tugboats sail Thursday beside the Ever Given, the giant containership that became lodged in the Suez Canal. (Photo courtesy of the Suez Canal Authority)

CAIRO/TOKYO -- As tugboats continued work Thursday to dislodge a giant containership from the Suez Canal, anxiety is growing that one of the world's busiest waterways could be congested for weeks, disrupting global trade flows.

The vessel's Taiwan-based operator, Evergreen Marine, said that Dutch company Smit Salvage and Japan's Nippon Salvage have been recruited to work with Egypt's Suez Canal Authority to design an improved plan to refloat the ship, Reuters reported Thursday.

But Evergreen Marine told Nikkei on Thursday that it is unclear when operation of the containership, the Ever Given, will be restored. The vessel become stuck in the canal on Tuesday. Tugboat activity was suspended late Thursday due to low tide.

The ship's owner, Japanese firm Shoei Kisen, on Thursday acknowledged the situation as "extremely problematic." If the obstruction is not resolved soon, the company could be held liable for lost revenue by the Suez Canal Authority, as well as for damages incurred by other ships.

Measuring 400 meters long and weighing 224,000 tons, the Ever Given is one of the world's biggest containerships. The Suez Canal is only 300 meters wide at the surface, narrow enough for the vessel to block it completely.

Passage through the canal will be halted until work is completed, the Suez Canal Authority said.

Dozens of containerships and tankers waited in limbo at both ends of the Suez Canal as of Thursday, data from IHI Jet Service shows, and the number is rising.

The canal provides the shortest shipping route between Europe and Asia. Fifty ships a day pass through the artery, accounting for roughly 10% of global trade volume. The canal authority says 18,880 vessels passed through in 2019.

Petroleum and petroleum products make up 23% of the cargo by weight. Asia is the destination for 60% of the freight traveling south through the canal. The Japanese Shipowners Association says 1,374 vessels affiliated with the group passed through the canal in 2019, roughly 7% of the total.

Japanese marine shippers Nippon Yusen, Mitsui O.S.K. Lines and Kawasaki Kisen said no major delays have emerged yet.

"If [the blockage] continues for one or two weeks, it would impact us, but conditions right now appear to be fine," said a representative at Kawasaki Kisen.

But shipping clients are alarmed by the potential chokehold on logistics. Envision AESC, which makes electric vehicle batteries, exports its products through the Suez Canal.

"If recovery efforts take weeks or more, then it will start to impact us," a company representative said. "We'll have to take a detour around the Cape of Good Hope [in South Africa] to transport freight, and we'll experience weeks of delays in imports and exports."

Data from IHI Jet Service showed the situation along the Suez Canal just after Ever Given became lodged at 11:00 a.m. on March 23, left, and the backed up traffic by 4:00 a.m. on March 25, right.

Sumitomo Chemical, which operates a joint venture petrochemical plant facing the Red Sea, transports some of the products to Europe through the canal.

"It may affect us if [the blockage] becomes long term," said a Sumitomo Chemical source.

The automotive industry, already slammed by the shortage of semiconductors, is exposed to the Suez predicament. Mitsubishi Motors ships around 150,000 vehicles made in Asia to Europe each year. Nissan Motor also transports automobiles from Asia to Europe.

"We are still collecting information, but it looks like we are using the Suez Canal," a Nissan representative said.

Shipping clients fear rising transportation costs. Capacity on containerships is running tight due to stay-at-home demand amid the pandemic, as well as the production recovery in the auto industry. The Shanghai Containerized Freight Index, a benchmark for shipping rates, hit 253.87 on March 19, roughly triple the reading from a year earlier.

"If there are delays in restarting passage [through the Suez Canal], it could lead to a rise in container spot rates," said a source from Yusen Logistics, a unit under Nippon Yusen.

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