Sailing through Suez
Suez canal
It is not hard to see just how complicated the processes of globalisation have become – just look at the nearly comic situation of the week-long blockage in the Suez Canal, which cost world trade nearly $10 billion

    On the morning of 23rd March, the giant container ship Ever Given, sailing from China to Rotterdam, became stuck on a diagonal in the canal, shutting down all movement of vessels in both directions.

    The exact reasons for the accident are under investigation. According to news reports, high winds had whipped up a vicious sandstorm. The captain may have become disoriented in conditions of poor visibility. The 400-metre vessel’s power system may have failed. In the event, the ship, with more than 18,000 heavy containers on board, ran aground.

    A backlog immediately formed of several hundred vessels, including tankers with Middle East oil, gas carriers, more container ships and others. Many were forced to turn around and embark on the long journey first undertaken at the turn of the 16th century by Portuguese navigator Vasco de Gama around Africa and the Cape of Good Hope – a delay of several days in their shipping schedule. Seagoing freight costs soared several times over and alternative routes suddenly gained popularity.

    Suez dig site

    At first, the problem did not seem so serious.

    There were no injuries among the 25-member crew. Technically, the ship remained in working order. There was no fuel spill.

    On the first day, eight tugs tried to shift the container vessel. But it only became more firmly grounded.

    Later, several construction and rescue teams, together with diggers and bulldozers, started to work on the canal’s depth. A dredger was even brought in to try to clear the way.

     By 25th March, the Suez Canal’s administration was in talks with the Dutch company Smit Salvage – specialised in sea operations. In 2001, the company took part in raising the Russian submarine K-141 Kursk from the seabed and in 2012 pumped out 2,300 tonnes of fuel from the cruise ship Costa Concordia that had run aground off the Italian coast. And in 2019, Smit Salvage rescued two tankers that had come under attack in the Gulf of Oman.

    Several scenarios were drawn up for freeing up the canal and the Ever Given – one such scenario involved unloading all 18,000 containers from on board, an extreme measure that would have involved several days of work and the possible use of special equipment to lift part of the cargo. By Sunday, Egyptian President Egypt/President Abdel Fattah Al-Sisi was prepared to issue the order to unload the Ever Given if, by evening, there was no change in the situation.

    But a miracle occurred.

    By evening, the ship’s bow was freed and the vessel, at long last, shifted. On Monday, the Egyptian president wrote on Twitter that the ship was no longer aground.

    “Egyptians have succeeded in ending the crisis of the delinquent ship in the Suez Canal despite the tremendous technical complexity that surrounded this process from every side,” the president wrote.

    As evening grew nearer, the freed container vessel had left the narrow part of the Suez Canal and was making its way, slowly, but under its own power without the help of tugs, to be moored in the Great Bitter Lake mid-way between the north and south ends of the canal. It will now be up to specialists to examine the container vessel and determine whether it is seaworthy.

“We sincerely apologise for causing a great deal of worry to ships in the Suez Canal and those planning to go through the canal,” the ship’s owner, Japanese company Shoei Kisen Kaisha, said in a statement.

    No queue jumping, please!

    It will now be up to shipowners and charterers to determine not only the damage caused by the backlog, but also to analyse the consequences of such unforeseen incidents for the sea shipping  market.

    This will depend to a great extend on how fast the Suez Canal can get back to normal operation. Osama Rabie, chairman of the Suez Canal Authority, said it would take about three and a half days to restore normal passage of ships.

    On average, 50 ships pass through the canal every day. As it is a popular route, even on normal days a queue of 20 to 20 ships forms at the entrances. As a result of the blockage, there are now about 450 vessels now massed at either end. Once normal operations are restored, it will take three to four days to work through the queue.

    According to the world’s biggest operator of container shipments, Danish transport firm Moeller-Maersk, it will take weeks or even months to restore the global sea shipping market.

    “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,” the company said in a statement.

    Given the current number of vessels involved, Maersk said, it could take six days or more to eliminate all the jams as more and more ships were arriving in the area. Three Maersk ships are now in the canal and a further 29 container vessels are at the entrance awaiting a resumption of shipping.

    Fifteen ships were redirected around the Cape of Good Hope – the decision to send them on that route was taken near the “point of no return” and it was expected they would continue on their way in order to reduce the number of vessels waiting in the approaches to the canal.

   Calculating the cost of an error

    Among those queuing up are vessels of the world’s leading logistic companies, including Moller-Maersk, Mediterranean Shipping, Ocean Network Express and Yang Ming Marine Transport.

    Lloyd’s List, world-wide shipping analysts, said a blockade in the Suez Canal lasting one hour costs world trade $400 million. Experts estimate the value of goods heading west at $5.1 billion each day and the value of goods heading east at $4.5 billion.

    Major companies have already redirected part of their oil tankers’ cargos around the Cape of Good Hope, though Bloomberg said that much longer route raises costs. The cost of fuel alone for a single supertanker totals $300,000.

    Shipping costs have climbed sharply amid the frenzy.

    The cost of shipping a 40-foot container from China to Europe has risen fourfold in yearly terms to about $8,000. The earnings of major oil carriers transporting fuel from the Middle East to China has risen to $1,371 per day even if the blockage did not affect that route. Ships owned by Suezmax – which normally carry 1 million barrels – now earn about $17,000 a day, the highest level since June 2020.

    The largest producer of machinery in the United States – Caterpillar Inc. – has encountered delays in its deliveries and is seriously considered sending its machines by air.

    Oil manages without “bad omens”

   An error committed by the captain of a container ship has even affected world markets for oil and LNG – the Suez Canal is the main route for transporting Middle Eastern oil and Qatari liquefied natural gas to Europe.

    Analysts Rystad Energy note that nearly all the LNG shipped from Qatar, the biggest producer in the world, passes through the canal, which is also an artery for shipments from the Mediterranean to Asia. Last year, about 260 shipments of LNG (about five per week) were sent from Qatar to Europe.

    Rystad said five tankers carrying LNG that had been due to arrive in Europe in the first week of April were delayed by the blockage and now in the canal and the Arabian Sea. The analysts calculated that a shipment from Qatar to northwest Europe took about 17 days through the canal (including nine days from Suez to Britain) and more than 30 days if sent around Africa.

    Sending LNG from the United States to Europe takes less time than shipping Qatari LNG around Africa – it therefore cannot be ruled out that U.S. companies will try to boost their exports to Europe.

    As spring takes hold and temperatures rise, demand for gas declines, but the blockades in the canal will undoubtedly push up prices (particularly spot prices, same day or next – to a lesser extent for futures trading). Russian pipeline deliveries are below maximum capacity so Gazprom could help provide some flexibility, analysts say. It is also to Norway’s advantage – though its shipments are near maximum levels.

    According to Bloomberg, about 13 million barrels of oil products were backed up in the queue outside the Suez Canal. Some of those tankers have been sent around the Cape of Good Hope, though that significantly pushed up the cost of their shipments. In the first days after the canal blockage became known, Brent oil prices rose by 5 %.

    True, a collapse was avoided.

    Thanks to the pandemic and last year’s economic crisis, large quantities of oil remained in European storage areas, smoothing over any shortage on markets. Reduced volumes from the Middle East were offset by supplies from North America and Russia. Sulphurous African oil continues to flow to Europe through the SUMED (Suez-Mediterranean) pipeline with a capacity of 2.5 million bpd. And Russian oil shipments remain stable.

    Despite all the preconditions for it, the incident did not produce a truly  “bad omen” for oil markets.

    An alternative to Africa – the Arctic

    According to Bloomberg, of the 13 million barrels of stranded oil about 2.6 million were of Russian origin. But it cannot be ruled out that this oil was shipped from Novorossiisk on the Black Sea Coast within the framework of the Russian-Kazakhstan “Caspian Pipeline Consortium” – and therefore originated in Kazakhstan.

    Data from analysts Argus showed that supplies of Russian Urals oil to Asia rarely pass through the canal as traders tend to prefer sending large supplies for shipment by VLCC tanker around the Cape of Good Hope. The very size of these tankers makes it impossible for them to negotiate the Suez Canal.

    Russia’s Energy Minister said that the incident in the canal had no effect on the country’s oil sector.

    “The restrictions on supplies through the Suez Canal were of nearly no consequence for Russian Urals oil, which moves along other supply routes,” the ministry said in a statement. One such route is the Eastern Siberia-Pacific Ocean oil pipeline used to ship Russian oil to Asia-Pacific markets.

    At the same time, Russia said it was prepared to offer to the world yet another real alternative transit route – the Polar Sea Route. This is an alternative that might have appeared somewhat  strange not only at the time of Vasco de Gama or 18th century Russian polar explorer Semyon Chelyuskin, but even at the beginning of the 20th century, regardless of whether it was in the Arctic, Africa or the Middle East.

    But, as the ministry said: “In view of the growing volume of world trade in energy resources and, more particularly, the gradual rise in world LNG trade, the emergence of new short supply routes has become just a matter of time. The Polar Sea Route, which has become open to navigation for longer periods, extending to 9-10 months in 2020, has great potential to expand the volume of cargo and can make significant reductions in the time required for transport of goods from Asia to Europe.

    The Polar Sea Route is in use for shipments of LNG, oil and many other goods. Despite far from favourable economic conditions in 2020, the flow of shipments through the Polar Sea Route exceeded expectations and totalled nearly 33 million tonnes of goods, including more than 18 million tonnes of LNG. We anticipate a further rise in shipments by 2024 to 80 million tonnes per year.”

     Given the development of modern navigation systems and a fleet of icebreakers, the Polar Sea Route could well become a worthy world trade route free of the problems of the Suez Canal.

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