The Strategist

Blocked Suez Canal is already affecting global trade

03/29/2021 - 04:04

The jam in the Suez Canal will cost the global economy $6-10 billion a week, experts at insurance company Euler Hermes have estimated.

Contains modified Copernicus Sentinel data [2021], processed by Pierre Markuse
Contains modified Copernicus Sentinel data [2021], processed by Pierre Markuse
The daily round-trip traffic through the canal is estimated at more than $9 billion, so stopping ships could reduce global trade growth this year by 0.3 percentage points for every week of Suez "downtime". 

Last week, container operator Evergreen's large 400m container ship Ever Given ran aground in the Suez Canal, blocking traffic from other ships. Last Thursday, the canal authority announced it would close the passage, and the company working to free it said the process could take several weeks. Each week of such disruption would cost the global economy $6 billion to $10 billion, or 0.2 to 0.4 percentage points of global trade growth, according to Euler Hermes, and Alliantz put a similar figure.

In 2019, 19,000 ships (1.25 billion tonnes of cargo, equivalent to 13% of global trade) passed through the canal, so there could be delays in the supply of consumer goods because of the blockage. Lloyd's List estimates that each day $5.1 billion worth of goods are shipped westbound through the canal and $4.5 billion worth of goods are shipped eastbound.

Alternative routes lengthen ship routes between Europe and Asia by 9 thousand kilometers, while prices for marine fuel in neighboring ports are significantly increasing.

Global trade, however, also faces other constraints, from container shortages to problems with semiconductor supplies, which have already led to longer delivery times and higher costs for raw materials and components. 

This, in turn, has a much bigger effect on global trade and could lead to a 1.4 percentage point drop in trade growth, or $230bn (on top of the cost of the channel blockage), according to Euler Hermes. Nevertheless, given the sagging global trade last year and the stronger-than-expected US fiscal support package, trade growth could be 7.9% this year (minus the low-base effect of 5.4%). Last year, the World Bank estimated a decline of around 9.5%.