Home >News >World >Ship stuck in Suez Canal heightens pressure on global supply chain

The blockage of the Suez Canal by a grounded container ship will likely add delays and extra costs to an already pressured logistics industry, say executives, punctuating the tightness of the world’s supply lines.

Oil prices rose and shipping stocks fell Wednesday as authorities in Egypt sought to dislodge a giant vessel blocking traffic on one of the world’s busiest shipping arteries, with industry executives warning that even a brief delay could have an outsize impact.

Disruption on the 120-mile Suez Canal, which connects the Red Sea with the Mediterranean, comes as global supply lines are already grappling with the continuing effect of the coronavirus pandemic, a global shortage of computer chips and adverse weather.

The Suez Canal is a vital trade route for tankers carrying oil and natural gas, along with container ships moving manufactured goods such as clothing, electronics and heavy machinery from Asia to Europe and the other way around. Some 19,000 vessels crossed the Suez in 2020, according to the Suez Canal Authority.

The passage is a particular choke point for the energy industry, with about one-tenth of the world’s seaborne oil trade flowing through it and the associated Sumed—or Suez-Mediterranean—pipeline in 2018, according to the U.S. Energy Information Administration.

On Wednesday, dozens of oil and liquefied-natural gas tankers were caught in congestion, according to commodities data company Kpler.

Traders said at least six cargoes of liquefied-natural gas from the U.S., Qatar and Egypt, destined for Europe and Asia, were stuck but noted the congestion shouldn’t be that problematic if resolved quickly.

“It’s not a big issue if fixed today, if it lasts it could be interesting," said a gas trader.

International crude prices were up more than 3%, a move some analysts attributed to worry about oil shipments.

Meanwhile, shares of some big shipping companies fell, with Mitsui O.S.K. Lines Ltd. down 4.6% and Nippon Yusen K.K. dropping 5.1%, amid expectations that the blockage could lead to delays and higher costs.

Around 30 container ships sailing from Asia to Europe cross the Canal every week moving roughly 380,000 containers according to Lars Jensen, chief executive of Denmark-based SeaIntelligence Consulting.

“If we assume that vessels are full, this means 55,000 containers of cargo from Asia to Europe daily. The expectation is that it will take some two days to clear the canal, which will cause the delay of 110,000 containers," Mr. Jensen said. “This increases the risk we will see port congestion in European ports one week from now."

Clarksons Platou Securities said that if the ship were to be stuck for days, freight rates for box ships would head higher. Rates from Asia to Europe and across the Pacific have already been hovering at record levels over the past four months amid booming demand from e-commerce giants such as Inc. and Target Inc. after the Covid-19 imposed lockdowns.

“While we would expect this to be a short-lived effect, the container ship industry is already very tight on capacity, with significant port congestion around the world," the investment bank said.

Container xChange, an online marketplace for renting or buying shipping containers, said Wednesday’s delays would likely further push up rental prices for containers, which have already soared to $2,000 from $200 a container in the last three months, according to Co-CEO Johannes Schlingmeier.

Mr. Schlingmeier said his customers, about 550 freight-forwarding companies, were concerned about a possible new upsurge in pricing, especially since they appeared to be easing over the last two weeks due to the end of Lunar New Year.

Clients “are afraid that this new event will just destroy these positive effects immediately again," he said.

The extent of the blockage’s impact on electronics makers, already suffering from a crunch to the supply of chips, caused by a surge in demand for gaming consoles and laptops during lockdowns, is still unknown.

Only a handful of suppliers such as Samsung and Taiwan Semiconductor Manufacturing Company, Ltd. make more than half the world’s chips, although many companies in the industry ship products by air. For that reason the blockage is “more likely to affect the finished goods than the chip manufacturers themselves," said Alan Priestley, an analyst covering emerging technology for Gartner Research. Recent shortages have raised semiconductor prices, but it was too early to see if today’s disruption would push them higher, he added.

Peaks and troughs in demand for chips isn’t unusual, but recent months have seen exaggerated effects that the industry isn’t used to, said Tim Whitfield, chief of engineering at Imagination Technologies Group PLC, a semiconductor designer based in the U.K., who is monitoring the Suez disruption for its potential impact on the industry.

He said the blockage was the latest in a sequence of problematic events for the supply of chips: Earlier this month a fire at an automotive chip factory in Japan sent further reverberations through the chip supply chain. “There seems to be a bit of a perfect storm at the moment," Mr. Whitfield said.

This story has been published from a wire agency feed without modifications to the text.

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