According to IHS Markit, in the five days from Tuesday, 23^rd March when EVER GIVEN ran aground, 49 container ships carrying an estimated 400,000 TEU were set to pass through the Suez Canal in both directions. The average value of the products in an ocean container is thought to be around US$40,000, which would make the total value of cargo on a container ship of the EVER GIVEN’s size close to US$1B, says IHS Markit, but that would depend on the mix of 40fts and 20fts being carried. In any event, what does value mean – the cif price, or the supply chain added value up to and including the final retail/e-commerce price?

For sure, as IHS Markit states, when EVER GIVEN is refloated, the result will be a wave of container ships hitting Europe’s hub ports in quick succession, stressing port facilities and inland infrastructure. ULCVs calling at the major gateway ports typically have a container exchange up to 10,000 TEU, which stretches terminal productivity to the limit at the best of times.

IHS Markit makes the point that long-term trends in sourcing have resulted in a steady shift in manufacturing from China toward South East Asia and India – particularly in footwear and apparel. So, this is not just a European affair; for US sourcing from those regions, the Suez Canal is generally the preferred route, as opposed to trans-Pacific.

A further consequence of any delays is that containers cannot be quickly returned to Asia. This will further exacerbate the acute problem of shortages of empty containers urgently needed for backloads and for Chinese and other Asian exports. This has been a significant problem since the post-pandemic (first wave) rebound started in August 2020.

Clarion warnings have been sounded from Geneva by FIATA, the global association of freight forwarders. The maritime supply chain has already undergone severe disruptions, exacerbated further by the ongoing COVID-19 pandemic and the situation is expected to worsen dramatically over the coming weeks.

Many vessels are rerouting around the Cape of Good Hope, adding additional transit times of 4-7 days if they have not already turned north in the Indian Ocean – more if they turn back from the Red Sea area. A likely increase in the speed of the vessels to mitigate delayed transit times will sharply increase fuel consumption, and this may also incur further container surcharges, although shippers and forwarders will strongly resist this.

Terminals will experience high congestion and the severe drop in vessel arrival and container discharge in major terminals will aggravate ongoing shortages of empty containers available for exports. Already, shipping lines have begun to stop export bookings for affected services. High delays in shipments, increased costs, and product shortages are expected.

“The situation remains uncertain and we have no information of substance that would allow for proper planning,” said Jens Roemer, Chairman of FIATA’s Working Group, Sea Transport.  “The fact is that an already heavily disrupted maritime supply chain has taken another hit that will further affect its fluidity, with long-term consequences related to congestion, lead times and [schedule] reliability.

“We are afraid that effects will not be limited to the Europe-Far East and Oceania trade lanes, because domino effects cannot be avoided.”

Interpolating all this bad news, it is likely there will be an increase in ad hoc transhipment activity once the canal reopens, as carriers will need feeders to access smaller ports in order to mitigate the pile-up at major gateways. 

Returning to Mr Roemer, he stressed that FIATA expects shipping lines to adopt demurrage and detention practices in line with the FMC’s “Interpretive Rule on Demurrage and Detention Under the Shipping Act.” This sets out, inter alia, that importers, exporters, intermediaries, and truckers should not be penalised by demurrage and detention practices when circumstances are such that they cannot retrieve containers from, or return containers to, marine terminals (Docket No. 19-05, May 2020). 

Another point to bear in mind is that new containers are in short supply as Chinese manufacturers, fed up with low profitability in recent years, have restricted supply despite rising demand, in order to support prices, with the result that dry van container prices doubled last year. As reported in WorldCargo News, February 2020, p1, “this presents a major issue for shipping lines and the container leasing industry.” 

Carriers made big profits in 2020 on lower revenues tied to lower volumes, due to a combination of their pandemic response policies of blanked sailings, and lower bunker prices, and this environment continued into Q1 2021. It had been anticipated that Q1 would see the “peak” of freight rates and that conditions would return to “normal” during Q2, but clearly this is no longer the case.

In a customer advisory issued on Friday, 26^th March, MSC warned that the canal incident will “have a very significant impact on the movement of containerised goods, disrupting supply chains beyond the existing challenges posed by the COVID-19 pandemic.”

Caroline Becquart, MSC’s Senior Vice President and head of Asia & 2M service network, said: “There’s no doubt that the current Suez Canal blockage is going to result in one of the biggest disruptions to global trade in recent years and we are working around the clock to manage our fleet and services so we can keep cargo moving and keep trade flowing as best we can under the circumstances.

“Sailing around the Cape of Good Hope is an option on some routes, while in other cases it’s more about working closely with our customers to see what other solutions we can devise. Unfortunately, even when the canal reopens for the huge backlog of ships waiting at anchorage this will lead to a surge in arrivals at certain ports and we may experience fresh congestion problems.

“We envisage Q2 2021 being more disrupted than the first three months, and perhaps even more challenging than it was at the end of last year. Companies should expect the Suez blockage to lead to a constriction in shipping capacity and equipment, and consequently, some deterioration in supply chain reliability issues over the coming months. MSC, as a container carrier and service provider, will exhaust all possible options to remedy the situation.”

The carrier stated that the following services were being rerouted via the Cape of Good Hope.

• Australia Express service: MSC SINDY, voyage MA109A
• 2M America service: MAERSK ALGOL, voyage 108E
• 2M Elephant service: MAERSK SKARSTIND, voyage 109E
• 2M Emerald service: BREMEN, voyage UL108W
• 2M Emerald service: MSC BILBAO, voyage UL109W
• INDUSA service: NORTHERN JAVELIN, voyage IV109R
• INDUSA service: VARNA BAY, voyage IV110R
• NWC to IPAK service: CONTI CORTESIA, voyage IP111R
• 2M Lion Service: MSC AMSTERDAM, voyage QL110W
• 2M Albatross service: MAERSK MERETE, voyage 111E
• 2M Silk Service: MAERSK MADISON, voyage 111E

Vessels being turned back are:

• India-Med Service: MSC STELLA, voyage MI109R, will discharge cargo at King Abdullah Port and return to India.
• INDUSA Service: SEAMAX DARIEN, voyage IV108R, will discharge cargo in Mediterranean ports, awaiting further orders.

As of 18.00h CET, 26th March, continued MSC, the following vessels with MSC customers’ cargo aboard were in the local area and “we continue to monitor the situation.” 

Vessels anchored at the Great Bitter Lake during transit on 23 March:

• MSC ROMA (southbound) – NWC to IPAK service, voyage IP109A
• MAERSK ESMERALDAS (southbound) – 2M Shogun service, voyage 107E
• MAERSK SAIGON (southbound) – 2M Elephant service, voyage 107E
• GUNDE MAERSK (southbound) – 2M Empire service, voyage 108W

Vessels southbound waiting at anchor:

• SEAMAX GREENWICH – Australia Express service, voyage MA108A
• MAERSK HANOI – 2M Phoenix service, voyage 109E
• SEAMAX NORWALK – Himalaya Express service, voyage IS109A
• GEORG MAERSK – 2M Lion service, voyage 106E
• MSC GIULIA – Indus Express service, voyage IU107R
• ADRIAN MAERSK – 2M America service, voyage 107E

Vessels northbound waiting at anchor:

• MSC ERICA – 2M Shogun service, voyage QH108W
• CONTI EVEREST – Australia Express service, voyage MA107R
• MSC RIFAYA – 2M Albatross service, voyage FB108W
• MSC BENEDETTA – Himalaya Express service, voyage IS109R
• MSC OSCAR – 2M Tiger service, voyage FT107W
• LE HAVRE – NWC to IPAK service, voyage IP110R
• EBBA MAERSK – 2M Condor service, voyage 109W
• MUNKEBO MAERSK – 2M Griffin service, voyage 109W
• MARY MAERSK – 2M Silk service, voyage 108W

In its latest Sunday Spotlight (# 507, published two days earlier than usual), Sea-Intelligence looks at added sailing distances and transit times in a one-way direction if carriers reroute via South Africa for destinations to North Europe, Mediterranean, and USEC. Assuming vessels sailing at 17 knots, one week would be added from Singapore to Rotterdam, 10 days to West Mediterranean, and a little over two weeks to East Mediterranean. On Asia to USEC, roughly 2.5-4.5 days will be added to the headhaul sailing times.

“With this, we can calculate the impact on global capacity,” said Sea-Intel’s CEO Alan Murphy. “The global fleet has a nominal capacity of 24.4M TEU. With a rough approximation of 80% time spent at sea, the global fleet has a production capacity of 19.6M TEU slots per day.

“The longer sailing times would necessitate an extra 14.4 days round trip to North Europe, and 26.8 days to the Mediterranean. This adds a capacity requirement of 1M TEU day to move the longer distances. Adding the Asia-US East Coast cargo to that, we end up with another 108,000 TEU Days.

“Hence, all in all, in order to reroute the cargo around Africa – or through Panama in some cases for the Asia-US East Coast – this will absorb an amount of carrying capacity equal to 6% of the globally available capacity. Converting this into a nominal fleet equivalent, then 6% of the global fleet is equal to 1.48M TEU of capacity – the same as 74 ultra-large 20,000 TEU container vessels.

“It is evident that such an amount of capacity absorption will have a global impact and lead to severe capacity shortages. It will impact all trade lanes, as carriers will seek to cascade vessels to locations where the find they have the greatest need.

“In the short term the only viable option would be to speed up the vessels. This can partially alleviate the problem, but far from solve it. In this case, increasing speed from 17 to 20 knots would reduce the impact on the global fleet from 6% to 5.2%. Going full throttle at 22 knots would still only reduce the impact to 4.8%.”

The bigger point arising from this is simply that containership sizes have “outgrown the infrastructure,” but, hey, nobody within the “conventional wisdom” paradigm wants to discuss this burning issue. It is time for regulators to step in. Carriers are too focused on “slot costs” on the water, but what about the societal costs of dredging deeper fairways, land reclamation, and the strains on port handling and inland transportation resources.

• Sunday, 28th March update from Evergreen. “Having removed more than 20,000 tons of sand and mud, the dredging operation underway has succeeded in loosening the EVER GIVEN’s bow within the bank of the Suez Canal and the ship’s stern has been cleared from the sand bank. The rudder and propeller of the vessel are fully functional and expected to provide additional support to tugboats assigned to move the container ship from the accident site so that normal transit may again resume within the canal. The rescue team is continuing the dredging efforts and will resume attempts to refloat the vessel at 14:00 local time today.”