Cost of Indecision
The blockage of the Suez Canal, an international trade artillery linking Asia to Europe and a vital source of foreign currency to Egypt, sounded the alarms of the vulnerability of global trade to such incidents.
Egypt had to reassure the global trading community of the canal’s ability to maintain safe passage for all ships, and ultimately, that it can handle accidents swiftly and efficiently amid competition with other trade routes.
$400m losses per hour
The canal carries over 10% of global maritime trade, according to official data from United Nations and the Suez Canal Authority (SCA). With 422 vessels waiting at the canal entrances, losses were estimated at $400m per hour during the crisis, according to shipping data and news company Lloyd’s list.
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Some vessels already changed routes during the blockage and global trade experts are bracing for extended repercussions impacting global supply chains and trade.
For Egypt, daily losses from the canal incident were between $12-$15bn every day, SCA chairman Osama Rabie told reporters after the Ever Given was refloated. But more importantly, other trade routes, like the Russian Northern Sea Route cutting through the Arctic ocean, began promoting themselves, risking the Suez Canal losing clients in case disruptions occur again.
Never again, ‘regardless of the cost’
Egyptian top officials were quick to send reassurances that they are taking measures to ensure that such incidents are swiftly resolved in future. Egyptian President Abdel Fattah al-Sisi said he gave instructions that any needed equipment be bought ‘regardless of the cost’ to ensure work continues at the Canal.
“The navigation of large carriers through the Suez Canal experiences tight safety margins connected to the available water depth and horizontal restrictions of the canal,” says Henk van den Boom, senior investigator at the Maritime Research Institute Netherlands (MARIN). “It is fair to say that the development of canal, locks and port infra structures have not kept pace with the development of the container carriers,” he adds.
Some modern-day Vessels, according to Henk van den Boom, can carry twice the number of containers the largest vessel could carry a decade ago. Factors like the wind and water depth challenge pilots and ship officers to keep a delicate balance with rudder and speed and gives such vessels “very small” safety margins when navigating restricted waters like the Suez Canal, he says.
What needs to be done
Investigations are underway to determine why Ever Given ran aground, suspected reasons include bad weather, human and technical errors, according to SCA’s Chairman Osama Rabie.
The canal has witnessed the safe passage of similar size vessels before.
“The Canal provides an important source of revenue for the government and, particularly at a time when sources of revenues from tourism for example are waning, the Suez may be leant on to help offset this,” says James Swanston, MENA economist at London-based Capital Economics.
Egyptian governments have worked on expanding and developing the waterway over the past decades. The latest expansion of the canal was the construction of a 35-kilometre-long parallel channel named ‘the new Suez Canal’ with a total cost of about $509m in 2015 in order to speed up navigation and crossing time for vessels.
READ MORE A new canal for a new Egyptian economy
Experts say similar expansions might be needed at the canal’s southern entrance.
The incident also underscored Egypt’s need to bring in bigger and powerful tugs to avoid similar situations in future. Egyptian tugs collaborated with some from the Dutch that are owned by Boskalis, a dredging contractor and marine services provider, to free the Ever Given.
“These mega-ships are here to stay, and the SCA needs to recognise the risks that these pose to their infrastructure,” says Rory Hopcraft, an industrial researcher at UK’s Plymouth University’s maritime cyberthreat research group.
“With ships this size growing ever more popular, it means the SCA needs to be prepared for these types of incidents and invest in appropriate infrastructure to deal with it like more powerful tugs, larger dredgers, and even floating cranes,” he adds.
Van den Boom from MARIN also suggests widening the canal and increasing its cross section to increase efficiency.
Vital for Egyptian economy
Maintaining traffic in the Suez Canal is vital for Egyptian economy. The canal brought in $5.6 billion in revenues in 2020 and makes about 2% of the country’s GDP. Economists, though, do not expect the six-day disruption to have a significant impact on the inflows from the canal.
However, the incident brought attention to the issue of maximising the economic benefit of the Suez Canal through the development of added-value projects around it.
“The Canal provides an important source of revenue for the government and, particularly at a time when sources of revenues from tourism for example are waning, the Suez may be leant on to help offset this,” says James Swanston, MENA economist at London-based Capital Economics.
The Egyptian government is embarking on a grand project to attract industrial developers and investors to the canal area in what is known as ‘the Suez Canal Economic Zone’. the project seeks to provide between 1 to 1.5 million jobs by 2035 but it is still waning.
“We have not seen the big investments we were expecting. We are waiting for more work to attract investments at a much higher rate than what is happening now,” says Alia El Mahdi, economics professor at Cairo University. “We must invest in this asset in a more efficient way,” she adds.
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