• Sugato Das

Suez stenosis and global trade flows

I checked WebMD, before typing this out. Stenosis refers to "the narrowing or restriction of a blood vessel or valve that reduces blood flow." Pretty much like the clog in Suez Canal casued by the 400m long golden class container ship 'Ever Given' owned by Evergren Marine Corp. of Taiwan. The ship has metaphorically created a stenosis in the channel impacting deliveries worldwide.

The Suez Canal holds a prime position among global shipping channels. Napoleon Bonaparte, once considered building the canal, but he wasn't sure if it would flood the Nile basin. It was not until 1854, that French diplomat Ferdinand Lesseps agreed with British Viceroy to establish the Suez Canal Co. The British Parliament had vehemenetly opposed the project, but did not miss taking 44 percent stake in the Company. The Canal was commissioned in 1869. In 1956 the management was transitioned from Suez Canal Co. to Suez Canal Authority (SCA), a government of Egypt entity.


This 164 km long waterway is a shortcut for near two-thirds of Europe's crude oil imports and 8 percentage of world trade. Maritime vessels from Asia save fuel burn on their European deliveries, cutting an approximated 44 percentage CO2 emission. In 2020, 18,829 vessels crossed the Canal ferrying over a billion tons of cargo, and generating US$5.6 billion in revenue for SCA.


So how much is this maritime stenosis costing? It is estimated that the blockage is costing circa US$10 billion a week and likley to shave off up to 0.4 percentage from global trade growth. The losses are from reduced vessel availability for new shipments, higher landing cost with additional rerouting expenses for in-transit cargoes, and penalties for late deliveries. It will also impact 90-days LC financed trades. Without a recourse to re-finance at the end of 12 weeks , cash cycle for importers will be adversely affected.


The good news is that since this morning, Ever Given has started to budge. Engineers and pundits are working on refloating the vessel; and in a knee-jerk reaction oil prices dropped by a-dollar. But the fact remains, the world is looking at alternatives to the Suez. This is not the first time that the Suez traffic was disrupted. Iran is proposing a North South Corridor alternative for maritime vessels bound for European ports. The idea is getting backed by Russia and Turkey. It would serve as a part of the 7,200 km multi mode route connecting India with Russia.

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