Shipping costs could rise due to prolonged Suez Canal blockage

It could also lead to goods shortage if it takes more than a few days to clear the vessel, Capital Economics says

Global shipping costs could rise due to the prolonged blockage in the Suez Canal, according to a London-based research firm Capital Economics.

This deadlock could also "exacerbate goods shortages" if it takes "more than a few days" to free the huge container vessel.

"If the grounding of the huge container ship in the Suez Canal is not resolved soon, it could push freight rates even higher … causing a further rise in manufacturers' costs and exacerbating temporary supply shortages," Capital Economics said in a note to clients.

However, there will not be any lasting effects on the world economy, if the blockage is resolved soon and in the meantime, the ships can be diverted around Africa, it added.

The Ever Given, a 200,000 deadweight-ton ship carrying 20,000 containers, is stuck in the Suez Canal after high winds blew it off course on Tuesday. It was on route from China to Rotterdam.

Given the sheer size of the vessel, experts have suggested that it could take days to weeks to free it, and to unclog the waterway through which more than 10 per cent of world trade passes each year.

"The grounding of the Ever Given could hardly have come at a worse time … freight rates for routes from Asia to the Mediterranean Sea have already trebled since November, with shipping capacity struggling to keep up with demand for traded goods," Capital Economics said.

The Suez Canal, dug more than 150 years ago, is one of the world's most important trade routes.

Nearly 19,000 ships, or an average of 51.5 ships a day, pass through the canal with a net tonnage of 1.17 billion in 2020 alone, according to the Suez Canal Authority.

Tariffs paid by ships entering the waterway are a major source of hard currency in Egypt.

An estimate suggests the blockage is costing about $400 million an hour, based on calculations from Lloyd’s List that suggest westbound traffic is worth about $5.1 billion a day and eastbound traffic approximately $4.5bn.

Capital Economics pointed that there has been a jump in export orders globally in the past few months and any increase in shipping costs associated with the disruption in the Suez Canal will do little to dent demand.

It also predicted the pressures on shipping capacity to ease in the coming months as the world entered the post-Covid era.

“The recent surge in consumer spending on certain import-intensive products including electronics is unlikely to continue … [and] spending should revert to more normal patterns as easing restrictions allow domestic retail and services to reopen.”

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