The Suez Canal blockage and its economic consequences
Head of Investment Research
The global shipping industry has been disrupted after a giant containership blocked Egypt’s Suez Canal on March 24, halting traffic on the shortest shipping route between Europe and Asia.
The Suez Canal is an artificial sea-level waterway connecting the Mediterranean Sea to the Red Sea which handles 12% of global seaborne trade.
The blockage has disrupted the transit of more than 400 vessels, including oil tankers, liquefied natural gas vessels, bulk carriers, and container ships.
Crude oil prices gained more than 5%, while the shipping freights for crude oil tankers nearly doubled as dozens of tankers are still waiting to pass through the Suez Canal.
Each day of blockage disrupts $10 billion worth of goods, adding concerns over the global supply chain which had already been impacted by the coronavirus pandemic. Ikea announced its supply chain could be disrupted while Amazon and Alibaba are also facing disruptions.
Even though the ship refloated on Monday, it will take many weeks for the whole supply chain to get back to normal, impacting manufacturers in Europe and retailers across the world.
The temporary closure of the Suez Canal highlights how the world is connected to the global supply chain, and the importance of strategic maritime waterways such as the Straits of Hormuz, and the Panama Canal.
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