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Suez Canal Blockage to have consumers bear higher costs

The infamous Suez Canal has been recently blocked by one of the world’s largest container vessels, The Ever Given.


The 200,000-tonne product carrying behemoth has a length of four football pitches with a capacity of carrying 20,000 containers. The vessel is operated by a Taiwanese company, Evergreen Marine.

The Suez blockage is approximately holding up $9.6bn of goods per day, with more than 160 vessels waiting at either end of the canal.


Data from shipping expert Lloyd's List values the canal's westbound traffic at roughly $5.1bn a day, with eastbound daily traffic at around $4.5bn, working out at $400m in trade being lost along the vital shipping route per hour.


This has caused a significant supply shock as 12% of global trade runs through the canal.


This supply shock has led to a notable compromise in markets such as; clothing, furniture, manufacturing components and car parts.


The delays in car parts will worsen the current computer chip shortage which car manufacturers are already dealing with.


However, some firms have begun diverting their fleets around the southern tip of Africa, the Cape of Good Hope.


The manoeuvre adds about 3,500 miles to the journey, a total of 12 extra days of shipping time.


So, the combination of increased travel times, as well as a supply blockage, will have adverse consequences on consumers.


This is due to the increased transportation costs associated with longer journeys, as these costs will be passed onto consumers through higher prices as firms wish to recuperate their losses.


To prevent such an event from happening again, there are talks of an expansion to the width of the canal, the last expansion was in 2015, where the depth was increased to 24m from 14m.


Due to the growing size of container ships, an expansion in the canal may be necessary to facilitate the increase in vessel size.


Although the blockage is at an unwelcome time, the event shows that an expansion of the canal is needed to facilitate growing containerisation allowing for more efficient global trade. So, perhaps it may be better early than never for such a blockage to occur as in the future it may have led to more disastrous delays.

 

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