From the Viewsroom

Lessons from the Suez crisis

P Manoj | Updated on March 28, 2021

A relook at the risks that massive container ships can pose is needed

A desert storm that blew over the Suez Canal early morning on March 23, threw billions of dollars of goods off course, exposing the potential trade disruptions that giant ships such as the ‘Ever Given’ can cause, particularly while navigating the Suez Canal. This narrow, man-made waterway stretch, which is a key artery for shipping goods between Asia and Europe, carries some 12 per cent of global trade.

As container carriers went ballistic a few years ago by betting big on mega box ships for economies of scale on long-haul trades, the attendant risks associated with size was probably glossed over. This was until Tuesday’s freak incident that caused a maritime traffic jam and the world started fretting over the disruptions it has caused to the supply chain.

For global trade, already reeling under soaring freight rates, equipment shortages and space crunch on ships in the wake of disruptions triggered by the pandemic, the grounding of the ‘Ever Given’ could not have come at a worse time.

The disruptions from the closure of the Canal could last for months and port congestion, equipment shortages and capacity shortages on ships are set to intensify.

Experts say that there are virtually no alternatives to Suez Canal for shipping goods via Europe and Asia, except to take a longer detour via the Cape of Good Hope, which adds extra two weeks and further costs to shipments.

To be sure, the Canal has not seen anything like this for years. The last time the waterway was blocked was in 2004 when an oil tanker got stuck and was closed for three days.

The magnitude of the current blockage is much bigger because goods shipped in containers have been the biggest casualty, hurting global markets trying to bounce back from the pandemic.

The key takeaway from the incident is that bigger ships create bigger problems. Taking a fresh look at the jumbo-sized problems that these ships bring in risk terms would be in order.

Published on March 28, 2021

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