Ongoing Suez Canal blockage to add pressure on global supply chains

The ongoing Suez Canal blockage will add more pressure to the already strained supply chains, mostly affecting the European auto manufacturers said Moody’s.

“Depending on how global and regional volume is calculated, we estimate that the canal's temporary closure affects around 10pc-15pc of world container throughput. The implications of delays for global supply chains would, under normal circumstances, not be a big issue. However, very high consumer and industrial demand, a global shortage of container capacity and low service reliability from global container shipping companies already causing long delays, has made supply chains highly vulnerable to even the smallest of external shocks. In that context, the timing of this event could not have been worse,” stated Moody’s.

The Evergreen Marine, a 1300f long Japanese vessel was stranded in the Suez Canal, a major trade route connecting Asia and Europe, on Tuesday, disrupting several ships on the Suez Canal, alongside disrupting international trade.

On Sunday it was learnt that the Suez Canal salvage teams were alternating between dredging and tugging to dislodge a massive container ship blocking the busy waterway.

Moody’s said that ships that were about to enter the canal will soon need to decide whether to turn back and use the alternative, longer route around the Cape of Good Hope, adding 10 days to their journey compared with the main route that includes the Suez Canal.

“The effect of delays on individual sectors is hard to quantify because of the uncertainty over how long the canal will be blocked. However, we believe that Europe's manufacturing industry and auto industry, including auto suppliers, will be most affected. This is because they operate “just-in-time” supply chains, meaning they do not stockpile parts and only have enough on hand for a short period, and source components from Asian manufacturers. Even if the situation is resolved quickly, port congestion and further delays to an already constrained supply chain are inevitable,” it said.

It is pertinent to mention that the 120-mile-long Suez Canal carries about 12 percent of the world's trade, connecting the Mediterranean and the Red Sea, providing a short sea route between Asia and Europe.