7 min read.Updated: 27 Mar 2021, 05:33 PM ISTPhilip Wen, The Wall Street Journal
Getting products between regions may require expensive airfreight or slower route around tip of Africa; delays seen for consumer and industrial goods
Asian and European businesses, which rely heavily on the Suez Canal to move their products between the regions, are weighing contingency plans as efforts to move a ship blocking the canal drag out.
With work by salvage crews to dislodge the grounded container ship Ever Given stretching into a fourth day, businesses in Asia and Europe are now expecting freight costs to climb and shortages of shipping containers to worsen, after they endured months of higher costs and delays due to already stretched supply lines during the pandemic.
Jack Yang, the founder of Yiwu Jin-Jack Import & Export firm, which sells goods such as umbrellas and jewelry from its base in eastern China’s Yiwu city, said several of his clients are now considering sending goods by rail to Spain and Germany instead of dealing with a potential prolonged blockage of the canal.
Others may be forced to consider airfreight. But rail or airfreight aren’t viable alternatives in many cases, because of the volume of the cargo or the higher costs involved.
“To put things in perspective, if you were to put the entire 20,000 containers on the Ever Given [on a plane], you’d need 2,500 [Boeing] 747 air freighters," said Tim Huxley, chairman of Hong Kong-based Mandarin Shipping Ltd.
As a result, it will delay shipments of many consumer goods and “it will affect a lot of people," he said.
Mr. Yang, the exporter in Yiwu city in China, said the cost to ship a 40-foot container box from China to Hamburg, Germany, was around $2,000 before the pandemic hit. It has more than tripled to over $7,400 in recent months. The price for sending the container via rail is around $8,100 now, he said. He predicted that rail freight rates might go up if more buyers divert from sea shipments.
Other exporters are simply stuck, unsure whether to wait things out and hope the canal clears soon or look at alternative routes such as one around the southern tip of Africa, a detour that is more expensive and takes about two weeks longer.
“If we make an alternative decision now and if things improve in the next few days, you could end up in another costly and time-consuming scenario," said a Shanghai-based executive at an international logistics firm specializing in chemicals, which has dozens of containers stuck on the Ever Given. “It’s damned if you do, and damned if you don’t."
Since last year, Covid-induced issues at ports in the West caused major delays in ocean shipping and resulted in containers stranded at sea or at ports. A surge of demand for goods ranging from personal protective equipment to bikes and toys left Chinese exporters scrambling to find empty containers.
The logjam of vessels waiting at both ends of the Suez Canal on Friday had grown to 237, up from 156 the previous day, according to Leth Agencies, a shipping services provider. The backed-up traffic will likely have a knock-on effect on Asia-Europe trade that will delay future sailings and put more strain on shipping capacity.
“We’re just at the beginning of this mess," said the Shanghai-based executive, who declined to be named because he isn’t authorized to speak to the media.
Accounting for as much as 13% of global maritime trade, the Suez Canal provides the fastest and most direct shipping route between Asia and Europe. It is pivotal for the delivery of bulk commodities such as oils and grains and containerized goods, including machinery, automotive parts, clothing and furniture. The waterway has been closed to all traffic since Tuesday, after the Ever Given wedged itself sideways in it.
“We expect Europe’s manufacturing, auto and auto suppliers to be most affected because they operate ‘just-in-time’ supply chains," said Daniel Harlid, a vice president at Moody’s. “This means they do not stockpile parts and only have enough on hand for a short period."
He added that even if the situation is resolved within the next 48 hours, port congestion and further delays to an already constrained supply chain is inevitable.
European ports expect the blockage to result in congestion in Antwerp, Belgium; Rotterdam, Netherlands; and Hamburg, Germany, in the weeks to come, as the backlog starts moving.
“There are currently 59 vessels on the east trade lane that are planning to come to Rotterdam via the Suez Canal," a spokesman for the port said. “We don’t know what shipping companies will decide, either they will wait for the Suez to clear or they will sail around the Cape of Good Hope. In any case they will arrive in Rotterdam later than planned."
“Essentially everything that goes to Europe from Asia goes through the Suez Canal," said Johannes Schlingmeier, chief executive of Container xChange, a Germany-based container leasing and trading platform.
Every week the canal remains closed will require another week to work through backlogs, said Mr. Schlingmeier, adding that container shortages would increase by 25% if it takes two weeks for the blockage to be fully resolved.
The average rate for sending a 40-foot container from China to Europe had already surged 10-fold over the last three months. “The price has gone up further in the past few days," he said. “We expect freight rates to rise, and we expect containers to be extremely short in the next 6-8 weeks."
Envision AESC Japan Ltd., which exports lithium-ion batteries to Europe via the Suez Canal, isn’t affected by the canal blockage for now. But the company, located near Tokyo, has expressed concerns about possible impacts if the situation is prolonged for a few weeks.
If that happens, Envision AESC’s spokesman Daisuke Fukushima said the company will need to consider an alternative way to ship batteries for electric vehicles assembled in the United Kingdom, via the Cape of Good Hope, the southern tip of the African continent. That “would delay delivery by a few weeks," Mr. Fukushima said. “And it would cost more for sure, as the ship would travel a longer distance."
The company also imports electrode materials via the Suez Canal. That means if the canal blockage continues, it could lead to a delay in its production of batteries, Mr. Fukushima said.
European coffee roasters and traders could also be affected. Europe’s supply of robusta—the bean needed for instant coffee—comes largely from Southeast Asia, with Vietnam accounting for almost one quarter of the EU’s coffee imports, according to Eurostat. But with the Suez Canal now temporarily closed, traders will need to find a new route for those beans to reach European coffee ports such as Antwerp, Barcelona and Trieste.
“With delays now very likely in the arrival of new shipments, stockpiles are likely to be eaten into over the next few weeks reducing the buffer that roasters and suppliers may have built in recent months," said William Rutherford-Roberts, an agricultural commodities analyst at brokerage StoneX Group Inc. Supplies of the bean have already been affected by a global shortage of shipping containers, an issue that was likely to be compounded by the blockage, he added.
Even companies that don’t use the canal are bracing for an impact.
Russian steelmaker PAO Severstal gets the coal and iron ore it uses to make its metal from local sources and doesn’t send its finished product through the canal. “But obviously, freight costs went up everywhere, and we need to calculate how that will affect us," said Alexey Kulichenko, the company’s chief financial officer.
The blockage isn’t likely to affect the delivery of a large number of semiconductor chips, which are mostly transported by air.
“Preserving a consistent humidity level is important for semiconductors, which is why more than 98% of chips are transported using air couriers globally," said Ju Seo-Hyun, director of sales in Korea for Fusion Worldwide, an electronic component distributor.
But a prolonged blockage at the canal could impact Asian consumer electronics manufacturers that use Egypt as a production hub for nearby markets. South Korean electronics maker LG Electronics Inc. assembles TVs in Egypt for its Middle East and Africa markets. A spokesman at LG said there currently is enough inventory in nearby markets, but sales might be affected if the Suez Canal situation goes on.
Asia’s overall crude oil imports also haven’t been heavily affected so far, as a large majority of North Sea, U.S. and African crude bound for east and southeast Asia is delivered via the Cape of Good Hope, commodity research house S&P Global Platts said.
One or two shipments of oil from the Mediterranean region to South Korea could be delayed about a week, Platts said. However, Asian buyers had already been shunning Mediterranean light sweet crude, which tends to traverse the Suez, since mid-2020 as the blend has become relatively more expensive than its European counterpart. That limits the impact from the Suez blockage.
Less than 10% of China’s crude imports are transported through the canal, energy consulting firm ICIS said.
Of more immediate concern in energy markets is Qatari liquefied natural gas bound for Europe. A prolonged blockage could force Qatari LNG supply to take the longer route round the Cape of Good Hope to Europe, adding 10-12 days to the one-way travel time. The situation could also prevent southbound transportation for Atlantic Basin LNG exports headed to Asia.
—Chuin-Wei Yap, Eun-Young Jeong, Miho Inada, Joanne Chiu and Will Horner contributed to this article.
This story has been published from a wire agency feed without modifications to the text.