Suez canal: shipping companies start rerouting as crisis drags on

Global shipping companies have begun to re-route cargo away from the Suez canal as the blockage of the crucial international waterway by the stricken vessel Ever Given entered a fourth day.

With the stuck ship holding up an estimated £9.5bn worth of goods in huge traffic jams at either end of the canal, seven tankers carrying liquefied natural gas (LNG) were diverted on Friday after the blockage caused traffic in the Suez canal to be suspended.

Three of the tankers were being diverted towards the longer route around Africa, via the Cape of Good Hope, data intelligence firm Kpler said, adding that majority of the diverted tankers originally destined for Suez canal were now headed elsewhere.

“A total of 16 LNG vessels’ planned transit via the Suez canal will be affected if the congestion persists until the end of this week,” said Rebecca Chia, a Kpler anlayst based in Singapore.

As of Friday morning, the vessel remained grounded in the same position, with tugboats and dredgers still working to free it, according to Canal service provider Leth Agencies. An unnamed Egyptian canal authority official told Associated Press that the refloating operation was a “very sensitive and complicated” operation which needs to “be handled very carefully.” They wanted to avoid “any complications” that could extend the canal closure.

The canal authority said late on Thursday that they would need to remove between 15,000 to 20,000 cubic meters (530,000 to 706,000 cubic feet) of sand to reach a depth of 12 to 16 meters (39 to 52 feet). That depth is likely to allow the ship to float freely again, it said.

At least four Long-Range 2 tankers that might have been headed towards Suez from the Atlantic basin were now likely to be evaluating a passage around the Cape of Good Hope, London-based shipbrokers Braemar ACM said on Friday morning.

Each LR-2 tanker can carry around 75,000 tonnes of oil.

The international shipping company Maersk said on Friday it was “looking at all alternatives” for its nine container ships stuck in the queues.

“Everyone is making contingency plans as we speak,” said Peter Sand, chief shipping analyst at BIMCO, according to CNN.

Authorities in Egypt will continue to work with salvage teams from all over the world on Friday to free the Ever Given, which became lodged across the southern section of the canal on Tuesday when it lost control during a storm.

Tugs have been unable to pull it free and efforts to dig out the bow with excavators have come to nothing.

Experts fear that the massive Panama-registered ship, which is 400m long and has a gross tonnage of almost 220,000, has wedged so far into the sand on either bank of the canal that it might not be possible to dislodge it without removing some of its cargo.

Such a process could take weeks, according to Peter Berdowski, chief executive of Boskalis, a specialist dredging company that has sent a crew to the scene.

“The impact on the global supply chain as a result of the vessel blockage in the Suez Canal depends on how long the route remains impassable,” Maersk said in a statement on Friday. “We closely follow the refloating operations and are currently looking at all alternatives possible.”

Maesk’s main international rival Hapag Lloyd was also reported by Agence-France Presse to be considering sending shipping round the Cape of Good Hope, on the southern tip of Africa, in order to ensure that goods could reach Europe without even greater delays.

There were more than 200 ships stuck at the north and south ends of the canal on Friday. Originally built in the 1860s, the northern section was expanded into two lanes in 2015 but the southern section where the Ever Given is stuck is only one lane.

About 12% of all global trade flows through the 193km-long (120-mile) canal, which allows tankers and container ships heading between Asia and Europe to avoid a long trip around Africa.

Lloyd’s List, the shipping data and news company, estimated on Friday that goods worth £9.6bn pass through the canal every day. Lloyd’s says about £5.1bn of that traffic was westbound from the Red Sea to the Mediterranean and £4.5bn was going the other way.

About one quarter of that traffic is on container ships – like the one that is now burrowed into one side wall of the canal.

Lloyd’s said more than 50 ships traverse the canal on an average day, carrying around 1.2bn tonnes of cargo.

Flavio Macau, a senior lecturer in supply chain management at Edith Cowan University in Western Australia, said it made sense for Maersk and Hapag-Lloyd to think about re-routing their shipping because longer delays at Suez could be costly.

“If you go to Suez you might expect to be 20th or 30th in line perhaps because there are about 50 ships in each direction every day,” he said. “But now you could be number 250 so that means you will be waiting 3-4 days to get through even when it reopens.

“So they have to calculate if they think the delays will last longer, and if they want to risk waiting another 3-4 days potentially to get through or instead go around Africa. This takes 7-10 days longer but there is less risk and certainty of getting to Europe.”

Suez canal: shipping companies start rerouting as crisis drags on

There were also concerns that the Suez situation could compound issues for an international supply chain already under pressure from the pandemic and a surge in buying.

Virus-related restrictions have trapped crews on merchant ships. Congested ports have led to container ships anchoring off the California coast, unable to dock and unload their goods.

Shortages of semiconductors and rare-earth elements have plagued manufacturers of cars and other consumer products.

“We have lots of things indicating a vulnerable supply chain at risk for disruptions, and now you put one more thing on top of that,” said Julie Swann, a logistics expert at North Carolina State University.

Jena Santoro, supply chain risk intelligence analyst for Everstream Analytics, said the blockage “could further exacerbate excessive congestion at European ports if cargo were to arrive all at once”. It could also cause a knock-on effect by creating a shortage of non-returned containers in China.

The reaction of financial markets to the prospect of goods being delayed for weeks has been muted, although the price of oil did bump up when Friday’s trading day began in Asia. Brent crude was higher by 43c, or 0.7%, at £62.38 a barrel by 0028 GMT, after dropping 3.8% on Thursday.

Macau said that although the delays would hurt those directly involved such as the Egyptian government, the owners and insurers, the overall damage was not critical.

“We are seeing a loss of efficiency.

But we are not losing all the ships, all the cargo or all the routes for shipping.

We can redirect the flow but it’s important to remember that there is no stop in manufacturing or demand.

It’s not the zombie apocalypse as some people have said.”

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