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Wednesday, 16 June 2021

Suez Canal crisis: Minimal effect on trade

The suspension of navigation in the Suez Canal has raised questions about its effects on prices, imports, and exports

Ahmed Kotb , Wednesday 31 Mar 2021
Minimal effect on trade
Minimal effect on trade
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The disruption of maritime navigation in the Suez Canal caused by the lodging of a giant containership, the Ever Given, wedged sideways on 23 March before being refloated and cleared on 29 March has led to concerns over supply chains, prices, and Egypt’s imports and exports.

The 400m long and 59m wide ship is operated by the Taiwanese transport company Evergreen Marine and is considered one of the world’s largest container vessels. It was successfully refloated on Monday after blocking the vital international trade route for nearly a week, leaving 422 ships (as of Sunday) waiting to pass through the 193km Suez Canal.

The successful refloating of the vessel following a series of tugging manoeuvres allowed for the reopening of the waterway to international shipping traffic. Osama Rabie, Chairman of the Suez Canal Authority estimated that it would only take four days for the complete queue of backlogged vessels to cross the Suez Canal (as of Tuesday).

An estimated 12 per cent of global trade passes through the canal each day, worth about $10 billion, according to global shipping news and data company Lloyd’s List, which estimated the value of goods affected by the Suez Canal disruption to have reached $400 million an hour.

During the first couple of days of the blockage, the price of Brent Crude oil increased by about five per cent to reach $64 per barrel over speculation that oil supplies could be put under pressure with no news on how long the Suez Canal would remain blocked.

Oil prices eased as traffic in the Suez Canal resumed on Monday amid rising Covid-19 cases worldwide that have triggered a slowdown in global demand. Around one million barrels of oil and roughly eight per cent of the world’s liquefied natural gas move through the canal.

The Suez Canal’s revenues to Egypt last year were estimated at $5.61 billion, or around $14 million per day. The possible effect of the crisis on Egyptian importers and exporters was a main issue of concern for many.

Ahmed Shiha, a member of the Importers Division at the Cairo Chamber of Commerce, said that Egyptian imports had been affected by the Suez Canal crisis. “Egyptian imports come mainly from Asia and constitute up to 60 per cent of total imports. They reach Egyptian ports after passing through the Suez Canal,” he explained.

Shiha added that the temporary disruption of movement in the canal would lead to delays in imported shipments, but stressed that this delay would not affect the prices of goods in the local market, especially commodities associated with the month of Ramadan.

Commodities for the Ramadan season, Shiha said, were already available in warehouses, and the market had access to stockpiles of basic food items that could cover demand during and after Ramadan. “There is no reason for merchants to raise prices, and they should be held accountable if this happens,” he added.

A large number of imports, mainly food commodities, entered Egyptian ports more than a month ago in preparation for Ramadan, which begins in less than two weeks.

Shiha pointed out that importers sometimes face disruptions in shipments as a result of climatic conditions, delayed customs-clearance procedures, or port congestion. “Delaying shipments for days does not significantly affect the market,” he stressed.

Egyptian exporters were also affected by disruption in maritime navigation in the Suez Canal.

“The crisis has caused a delay in the arrival of production supplies to factories in Egypt and around the world, especially since most of these come from China. This has led to a delay in the delivery of orders,” said Hani Barzi, head of Egypt’s Export Council for Food Industries.

The movement of exports had been indirectly affected during the blockage, leading to delays of shipments to some factories, he added.

Exports are an important source of hard currency for Egypt, and the total value of Egyptian exports during the first 11 months (January-November) of 2020 amounted to about $22.8 billion, according to the Ministry of Trade and Industry.

Egyptian imports also witnessed a significant decline during the period from January to November 2020, reaching about $58.1 billion, according to the ministry. According to the credit-ratings agency Moody’s, Egypt’s balance of payments is not expected to see significant disruption as a result of the Suez Canal blockage. It rates Egypt at B2 stable in credit-rating terms.

On Monday, Fitch Ratings also assigned Egypt’s Suez Canal Insurance Company (SCI) and Insurer Financial Strength (IFS) ratings of B+ with a stable outlook. But it also announced that the blocking of the Suez Canal and the resulting disruption to global shipping was likely to cause large losses for the reinsurance industry.

“The ultimate losses will depend on how long it [took] the salvage company to free the container ship completely and when normal ship traffic can resume,” the company said.

 

*A version of this article appears in print in the 1 April, 2021 edition of Al-Ahram Weekly

 

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