Stuck in the Suez

Stuck in the Suez​

The Story

On Tuesday 23 March 2021, a 400m-long shipping vessel ran aground in the Suez Canal. The cargo ship, the Ever Given, was grounded due to high winds, causing the vessel to splay diagonally across the canal. The Ever Given weighs 220,000 tonnes due to the 18,300 containers onboard (Sky News).

The impact of the stuck ship was felt worldwide, as the Suez Canal is one of the world's most important trade routes, connecting European waters to the Asian Pacific. It led to bottlenecks at ports, spoiled cargo, and an increase in oil prices following fears of an extended blockage.

What It Means For Businesses and Law Firms

The Suez Canal opened in 1869 under French control as a key passage between the east and the west. The importance of the canal was highlighted in 1956 when the Egyptian President nationalised the waterway, causing the UK, France and Israel to invade Egypt.

Today, the Suez Canal handles around 12% of global seaborne trade and roughly the same amount of oil (Financial Times). Usually, 50 ships traverse the 120-mile canal daily. The blockage caused around 320 ships to anchor at the canal entrances with their cargo stranded aboard (Suez Canal Authority (SCA)). Companies faced a huge decision between waiting for the route to reopen, or using an alternative route which added days to the journey time.

The importance of the passageway was further highlighted by the estimated costs of the delay. It is estimated that the blockage was holding up $9.6bn of goods per day (Lloyd’s List). Cargo ships are carrying more volume than ever before and account for more than half of the canal’s annual 19,000 users (SCA). This created huge revenue for Egypt, which was missing out on $14-15m of canal fees daily (SCA).

The global impact of the incident is also evidenced by the 6% jump in Brent Crude oil prices, a huge sign the market was concerned about shortages and disruptions (CNN). The Ever Given’s plight also impacted consumers as goods faced significant delays. At the time, this was foreseen to create shortages in shops, delays on imports and potentially cause inflation – a symptom usually associated with shortages as prices increase alongside demand.

Although the shipowners have insurance and indemnity cover, it is estimated that the costs of the incident will be around $100m in compensation, covering the loss of revenue, damage to cargo, and costs of the rescue (McGill and Partners).