The massive container cargo ship, Ever Given, ran aground on March 23, blocking all traffic through the Suez Canal for an entire week before being freed. The drama may be over, but the after-effects will linger for weeks – and maybe longer. As we saw during the Covid pandemic, significant disruption to the global supply chain has ripples that extend all the way to the retail shelves for consumers of energy, food, household goods – and more. So what should the consumer know – and prepare for?
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To understand how significant this event is, let’s paint the picture of both the vessel and the Canal.
The massive container-cargo vessel MV Ever Given is 1,300 feet long, about the length of the Empire State Building if it were tipped on its side. Its cargo load is also impressive: the ship can haul 18,300 trailer-size containers that make up an estimated 224,000 tons of all manner of goods. If you were to line those containers end-to-end on land, it would stretch from N.Y.C. down past Washington D.C.
The ship – bound from Malaysia to the Netherlands — encountered 46 mph winds that helped push the huge vessel aground on the Canal’s eastern bank.
In short order, the Ever Given had blocked the entire 984-foot width of the Canal – effectively stopping passage by any of the other 50 vessels that normally move through the Canal each day, Each year, almost 19,000 vessels that travel the Canal. As efforts to free the ship dragged on for a week, the back-up of waiting ships grew well into the hundreds – by some estimates, as many as 350 of these massive ships.
As the incident makes clear, the Suez Canal is one of the most critical global trade points. The Canal, built over a decade beginning in 1859, has become a significant shortcut for oil, gas, and other ocean-borne freight moving in international commerce, especially between Europe and Asia.
Rather than brave the long, tumultuous route around the southern tip of Africa, ships traversing the 120-mile Canal can save as many as 3,500 nautical miles and as much as two weeks in travel time – and cost.
Today, the Canal accounts for about 10-12 percent of international commerce. Lloyd’s List (the recognized Bible of the shipping industry) estimates the cost of the blockage to international trade at $9.6 billion every day – or $400 million every hour or $6.7 million every minute we waited for the Canal to reopen.
If the ship is now freed, what’s the big deal?
The spectacular sight of the motionless Ever Given makes for entertaining video and somber news reports.
But the significance of the event is much bigger than a single cable news cycle.
While the Ever Given has been dredged, and is no longer blocking the Canal, consumers everywhere will be living with the after-effects of this situation for weeks – and possibly months to come.
Why? Because the ripple effects of closing the Canal will spread around the global trading system and once again highlight the delicate balance that exists within our modern supply chain for basic goods – oil, gas, food commodities, manufactured goods, and virtually all the elements of modern daily life.
Modern supply chains are much like carefully choreographed ballets. Each step in the chain depends upon the timely completion of the previous link. Just-in-time delivery is a cornerstone of the system. When deliveries are delayed, stocks may accumulate at production points, and shortages emerge at delivery points. Critical equipment and infrastructure – such as trucks, storage space, and so on – no longer function in the smooth, carefully-timed manner needed to keep the system moving smoothly.
Producers can’t sell, retailers can’t deliver. Consumers became intimately acquainted with these simple realities during the Covid pandemic.
How one ship affects the entire supply chain
As a result of this incident, hundreds of ships will be out of position as they wait at anchor or take on lengthier, costlier travel routes. A global shortage of containers (like those on the Ever Given) will become more pronounced. It will take weeks to sort out the imbalances and restore the system’s normal timetables and schedules. Freight rates are likely to increase, meaning the costs ultimately borne by consumers will rise, too.
Events such as this have a trickle-down effect that spreads across the entire supply chain. Given the importance of the Suez Canal in overall global commerce, the consequences of the shutdown aren’t likely to be confined to only a few, select products. The Canal is an important part of the global energy trade, with almost 10 percent of refined oil and 4 percent of crude flowing through the Suez Canal. Every day, about 600,000 barrels of oil bound from the Middle East to Europe and America travel the Canal.
Video coverage of the event helped everyone see the sheer scale of the problem.
Most of the products onboard are exported from Asia to Europe and then shipped across the Atlantic to the U.S. For instance, coffee from Vietnam gets processed in Europe and then sent to U.S. grocery stores. But the roster of goods flowing through this trade artery also include furniture, clothing, manufactured goods, even some of the pulpwood that makes up many of the paper products consumers rely upon. (Flashing back to the great toilet paper shortages wrought by Covid.)
Canal traffic regularly includes everyday food staples, notably significant volumes of coffee, as well as livestock. As many as eight of the vessels delayed at the Canal are reported to be carrying animal cargoes. The Canal is a major trade route for many of the 1.6 billion live animals exported by the European Union each year, especially those bound for Asian markets hungry for animal protein. Thus the actual volume or live animal trade affected by this event could be significant. Hopefully, this event won’t prompt another meat shortage like last spring’s declining meat supply.
So what can the consumer expect?
What consumer products will be affected? And how will it all affect the supply and cost of the food we buy every day?
The consumer can expect once again to see some spot disruptions to normal supplies at the retail level. European consumers may bear the brunt of the disruptions, but the ripples will spread to other markets, too. The week-long delay was costly enough on its own.
But as we learned from our Covid experiences, the system will adapt. The Canal is now reopened. The problems we noted will be solved. The only uncertainty is exactly how long that process will take. The more important issue is when the system will return to its normal rhythm, as disruptions and backlogs ease and equipment moves back into normal positions.
This Visual Capitalist chart puts the various shipping choke points in perspective.
We may see some supply disruptions, but they are likely to be more isolated and temporary than systemic and sustained. Prices may spike in certain places for certain products, especially in the energy sector. But supply and demand remain generally in balance for basic commodities and staple goods. There is no need to stockpile.
The Bottom Line
The closure of the Suez Canal is another reminder of the interdependence of every segment of our modern supply chain, not just for food but for virtually all of life’s essential products. As the supply chain works to clear the backlog of Canal traffic and resumes traditional shipping patterns, consumers will see that reality play out at our local stores. But as the pandemic taught us already, the system will adapt and return to normal, as long as we do our part and don’t over-react with more panic-buying.