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Suez Canal blockage: Global shipping faces another challenge

by ChemOrbis Editorial Team -
by Başak Ceylan -
  • 26/03/2021 (09:19)
A massive container ship ran aground in Egypt’s Suez Canal on Tuesday, March 23, blocking the maritime traffic in the world’s key shipping waterway in both directions. As efforts to dislodge the ship are taking longer than initially expected, players are now questioning the possible impacts of the situation on polymers markets and the global shipping industry.

Data from Vessel Finder showed a backlog of ships on March 25

Ultra large vessel halts shipping operations

Ever Given, one of the world’s largest ultra-large container vessels, turned sideways and got stuck in the world’s key shipping waterway at about 7:40 local time (05:40 GMT) on March 23.

The grounding of the ultra-large ship, which is 400 meters long and 59 meters wide, caused maritime traffic to grind to a halt and a severe ship congestion in the canal.

Suez Canal accounts for 12% of total global trade

Suez Canal, one of the key waterways in the world, links the Mediterrenean Sea to the Red Sea and allows the quickest route from Asia to Europe. It is also a strategic route for crude oil, petroleum products, and liquefied natural gas (LNG) shipments to Europe and North America.

The canal accounts for approximately 12% of the total global trade and 30% of the world’s daily shipping container volume transits. According to data released by the Suez Canal Authority, 18,829 ships crossed the Suez Canal, carrying a total of 1.17 billion tons of goods in 2020. Data show that more than 50 cargo ships cross the canal on a daily basis.

Roughly 185 vessels line up at blocked canal

The COVID-19 has impacted supply chains continuously since the onset. Freight costs and lead times increased dramatically amid stronger demand for shipping and a shortage of containers, trapping the global shipping industry in a perfect storm.

According to analysts, a prolonged delay could spell further trouble for supply chains that have already been disrupted by pandemic.

As of March 25, there were more than 185 vessels waiting to transit the waterway. The line-up included 40 bulk carriers, in addition to 17 crude oil tankers, 17 chemical tankers, and 14 LPG and LNG tankers.

Oil jumps on a knee-jerk reaction, futures remain volatile

Energy markets jumped on a knee-jerk reaction due to mounting concerns over possible delays in crude oil shipments. West Texas Intermediate (WTI) and Brent crude futures for May delivery surged nearly 6% on Wednesday to settle at $61.18/barrel and $64.41/barrel, respectively.

However, the recent upsurge in energy markets was proven shortlived as oil demand woes seem to have outweighed the disruption at the Suez Canal for now, considering that both oil benchmarks were trading around 5% lower at 11:05 am EDT on Thursday, March 25.

Energy markets remain volatile under the impact of divergent factors, including demand concerns driven by renewed lockdown measures in Europe and the blockage of the Suez Canal.

Initial reactions from polymer markets

The blockage has not had a visible impact on polymer pricing so far, but players are taking a cautious stance in case the dislodge of the vessel takes longer than anticipated. Still, many of them are aware of the fact that the prolonged blockage of the key shipping route might put a pressure on prices somehow.

“The longer it takes to free the vessel from the canal, the larger impact prices may see,” a player reported to ChemOrbis.

Uncertainty over blockage raises concerns

Efforts were ongoing to dislodge the 200,000 tons vessel stuck in the canal at the time of writing. Estimates regarding the duration of the blockage varied, stretching from a couple of days to several weeks. Some experts claim that the best chance to refloat and remove the vessel from the canal could be on Sunday or Monday, with the help of the anticipated high tide. However, recent reports indicate that the process could take weeks if the vessel needs to be unloaded.
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