Updated: Apr 30, 2021
Keith Sarnell, Vice President of OEC’s Great Plains region, gives his thoughts on the Ever Given incident and what it means for our current market.
Q. How disruptive was the blockage in the Suez Canal to the industry and world trade?
A: The Suez Canal is an important waterway. It connects Europe and the Mediterranean Sea to the Far East, and it’s an important route from Southeast Asia to the East Coast of the U.S. About 10-12 percent of global trade travels through the canal, which is roughly 19,000 vessels per year. Based on that substantial volume, and the significance of the affected trade lanes, the incident was acutely disruptive to a supply chain that was already heavily backlogged.
Q. Who took the biggest brunt and what are some repercussions that the market is dealing with now?
A: Right out of the gate, the incident caused about 33 container ships to be stuck within the canal. On top of that, over 300 vessels were backlogged on either side of the Suez Canal for the seven days while crews worked to refloat the Ever Given. That was a lot of capacity carrying a large amount of freight and goods, specifically commercial goods, that did not flow through the supply chain like they were supposed to. A huge financial impact will be felt for a while as a result of this accident. That being said, the true impact will not be felt until delayed vessels reach their ports of call in the United States. Their arrival will result in severe congestion on the East Coast from vessel bunching, and those delays will take many months to clear as the supply chain tries to catch up, especially if it coincides with our traditional peak season – starting in June.
Q. Did you immediately think of any changes that need to be made so this never happens again?
A: While the canal had been blocked in the past, it has never been to the size and scale of what we just witnessed a few weeks ago. The megaship was able to block the entire canal, from one bank to the other. What people may not know, is that many container ships that pass through the Suez are just as large. This begs the question, “Should these megaships start finding alternative routes?” If that’s not possible, the next question would be, “Does the Suez Canal need further expansion?”
Q. How will this incident factor into contract negotiations?
A: I think this year more than ever, we’re in a market where demand far outpaces supply. Space is at a premium that we’ve never seen before. This incident is only going to strengthen the position of the carriers as they renew contracts on May 1st, suggesting that rates will remain high for the remainder of the contract year.