Inside Logistics

Now that Ever Given freed, shippers should brace for lingering effects

Should prepare for ongoing delays and possible rate increases


March 31, 2021
by

With much fanfare from the tugs assisting her and the workers ashore, not to mention the jubilant crew, the MV Ever Given was carefully towed free yesterday from the spot where she’d been wedged in the Suez Canal since March 23.

While much remains to be discovered about the condition of the ship, how it became stuck and the possible need to offload its 20,000 containers, the bigger question for shippers around the globe is how the backlog it created will affect the movement of cargo in coming weeks and months.

As soon as it was out of the way, convoys of ships that had been waiting to transit the canal began to move. In the week the Ever Given was wedged, more than 360 ships were stalled by the blockage, while Maersk alone redirected 15 ships around the Cape of Good Hope, the southern tip of Africa. Estimates suggest the stall affected 12 percent of global trade, or US$10 billion a day.

A vital shortcut

The canal, a narrow ribbon of water almost 200 kilometres long, which connects the Arabian Sea via the Red Sea to the Mediterranean Sea, was first built by the ancient Egyptians more than three millennia ago. The modern canal was conceived in 1859 and after 10 years of dredging it opened for traffic in November 1869.

The canal allows shipping traffic to cut thousands of kilometres – and days in transit – from the trip between Asia and Europe and North America’s East Coast. The trip around the Cape of Good Hope adds seven to 10 days to a trip from Asia to Europe, and vastly increases the cost thanks to the extra fuel required.

As a side note, in 2016, it was actually cheaper for some vessels to take the long way around thanks to the low price of oil. At the time, SeaIntel estimated the average saving was about $US235,000 per sailing, the difference between the cost of paying the Suez transit fees and the fuel costs for steaming around the bottom of Africa.

But for all its savings potential, the canal is also a choke point for global supply chains, as was made abundantly clear by the ability of a single vessel to disrupt the flow of containerized goods.

Analysts suggest there will be lingering effects that will add to the headaches already being experienced by shippers who rely on containerized ocean freight, which is nearly all of them.

“There are two terms that everyone learns when studying supply chain management,” said Rich Thompson, JLL’s global head of supply chain and logistics solutions.

“The first is ‘bottleneck’ and this is a vivid example of a bottleneck. The second is ‘bullwhip effect’ which refers to the back end consequences of such a problem or mistake. The bullwhip effect related to this will essentially mean that consumers will face certain shortages of products in the near-term and will be paying more for those products in the mid-term.”

Backlogs at ports will worsen

Already out of control backlogs of ships and containers at many ports the world over will be exacerbated by the disruption in the even flow of ships around the world. They are now set up to begin arriving in clumps, which will mean further delays, more skipped calls, late arrivals and delayed pickups.

“It is now vitally important to clear the “traffic jam” of ships delayed in the Canal as quickly as possible, to restart the supply chain and minimize any disruption,” said Alex Veitch, general manager for public policy at Logistics UK, ta business group representing the sector.

“However, the clearance of so many ships at one time could cause congestion at ports along the supply chain, with a resultant slowdown in port productivity.”

The shipping lines themselves are warning of continuing delays. “Even when the canal gets reopened, the ripple effects on global capacity and equipment are significant and the blockage has already triggered a series of further disruptions and backlogs in global shipping that could take weeks, possibly months, to unravel,” Maersk said in a customer bulletin.

Maersk announced on March 30 that it is suspending short term bookings placed via Spot as well as short term contracts, this week and in the immediate future, for the a wide selection of its services. It said the temporary halt will allow it to quickly move existing laden cargo and empty containers to the areas they are most needed.

Shippers beware

And while Maersk was very communicative about its plans and actions throughout the week that the Ever Given sat stuck, the Global Shippers’ Forum warns the liner operators may use the situation as an excuse for further rate hikes or surcharges. “…some shipping lines are already predicting an increase in spot rates and surcharges due to the disruption. GSF is warning shippers to be wary of this signalling of future prices and of demands for new surcharges,” said the GSF’s secretary general James Hookham.

“This incident was not our fault and the reasons why customers should be expected to pay extra, on top of record shipping rates for goods delivered late and for reasons ultimately of the industry’s own making should be challenged. The shipping industry is reminded that ‘Suez’ is a canal in Egypt, not an excuse to price-gouge your customers.”

The reality remains that shippers will be in the dark for some time about the whereabouts and arrival times of their containers. “Meanwhile, shippers will be preparing for the arrival of their delayed and diverted cargoes and for that they need prompt, comprehensive and frequently updated details about which vessels will be calling at what ports and on what dates. Some lines are excellent at doing this, others less so.”

Ultimately it will be some time before the full cost of the Ever Given incident is known. There will be massive insurance claims, and the trade disruption itself will carry a cost for global trade. Ralph Welborn, co-managing partner of AI firm ClearPrism said their data suggest the disruption will cost an estimated US$45B in 2Q 2021.