27 March 2021

Ever Given and Fragility of Shipping Routes Post 2020


Shipping is directly driven by global economic growth and the need to carry goods internationally

Global economic growth directly influences international trade which in turn directly affects shipping and growth in seabourne trade volumes (which directly measures demand for shipping, port and logistics services). Shipping is the most commonly used mode of transport in international trade, carrying some 85 per cent of the total transport volume.

On 1 January 2020, the Shipping Industry and Traders were adapting to the onset of IMO 2020 with the low sulphur fuel regime for Ships, consequences of Trump’s Trade War with China and the lingering effects of the crash in Oil Prices, each causing different effects. The Beirut Port explosion and disaster also highlighted the lurking danger of shipping and storage of dangerous goods.

When Covid-19 hit in early 2020, countries rushed to contain the infection by closing borders, shutting down industries and restricting movements.

At the height of the Pandemic businesses faced tight lockdowns, factories were closed, but essential services were still allowed to operate. Movement of goods were drastically affected. Freight Forwarding and logistics companies were allowed to operate with permits. Governments realise that while guarding lives were important, trade and commerce must still operate. Trade flows through Shipping require critical coordination of all parties eg Forwarders / Logistics companies, Shipping Lines / Carriers, Ports and Warehouses. 

One of the effects is the utilization of shipping containers. Since they were first deployed in 1956, containers have revolutionized trade by allowing goods to be packed into standard size receptacles and hoisted by cranes onto rail cars and trucks — effectively shrinking the globe. Containers are how most commodities and consumer goods are moved internationally. Yet even amid the downturn, orders surged for protective gear like surgical masks and gowns used by frontline medical staff, much of it made in China. Chinese factories ramped up, and container ships carried their products to destinations around the planet. The recovery was not uniform for all cargoes and markets. 

Containers that carried millions of masks and other cargoes to countries in Africa and South America early in the pandemic remain there, empty and uncollected, because shipping lines have concentrated their vessels on their most popular routes — those linking North America and Europe to Asia.

The chaos on the seas has proved a bonanza for some shipping companies.

Furniture giant Ikea is among the retailers experiencing supply issues. Shipping costs to import goods from countries such as China have risen dramatically. The shipping costs of about $1,200 to get a container over from China and Indonesia to the UK a year ago rose to anywhere between $7,000 and $10,000 in March 2021.

In March 2021, the fragility of trade routes was once again exposed when the large container ship the Ever Given operated by Evergreen Line ran aground in the Suez Canal. Its large size covered the width of the Canal holding up vessel traffic and the route across the Canal for days while efforts were made to dislodge the ship. This caused knock on effects on the movement of cargoes globally as the 12% of global trade are carried on board ships using the Canal to move cargoes from Europe to Asia

The Suez Canal is a crucial shortcut between Asia and Europe that saves ships from having to navigate the Cape of Good Hope around the southern tip of Africa which is a significantly longer journey. Roughly 30 per cent of the world's shipping container volume transits through the 193km canal daily

The blockage of the Canal had caused vessels backed up in the Mediterranean to the north and the Red Sea to the south. It is estimated that the costs to global trade is estimated to be about US$400 million per hour based on the approximate value of goods that are moved through the Suez every day, according to shipping data and news company Lloyd’s List.Lloyd’s values the canal’s westbound traffic at roughly US$5.1 billion a day, and eastbound traffic at around US$4.5 billion a day.

The effect on the global supply chain due to the incident will also result in insurance claims.

  • See Dong-Wook Song, Photis M Panayides, Maritime Logistics 2nd Edition at p. 36.
  • See the Author’s article : https://theimpactlawyers.com/news/beirut-port-tragedy-law-relating-to-dangerous-goods-the-imdg-code
  • See the Author’s article ‘The Impact of the Covid-19 Pandemic Effects on Shipping’, The Maritime Executive 7 April 2020, https://www.maritime-executive.com/editorials/the-impact-of-the-covid-19-pandemic-on-shipping
  • See the Author’s article ‘Operating in a Changed World’, The Maritime Executive 7 February 2021, https://www.maritime-executive.com/magazine/operating-in-a-changed-world
  • See ‘Chaos strikes Global Shipping’, The New York Times 6 March 2021: https://www.nytimes.com/2021/03/06/business/global-shipping.html, See also the Author’s article ‘Operating in a Changed World’, The Maritime Executive 7 February 2021, https://www.maritime-executive.com/magazine/operating-in-a-changed-world
  • Maersk, which in February 2021 cited record-high freight prices in reporting more than $2.7 billion in pretax earnings in the last three months of 2020. Ibid.
  • See Garden furniture shortage no picnic for retailers BBC 14/3/21: https://www.bbc.com/news/business-56357221
  • See Suez Canal Traffic Snarled After Megamax Boxship Runs Aground:
  • https://www.maritime-executive.com/article/suez-canal-traffic-snarled-after-megamax-boxship-runs-aground
  • See http://timesofindia.indiatimes.com/articleshow/81681095.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
  • See https://www.channelnewsasia.com/news/singapore/suez-canal-blockage-supply-disruptions-asia-psa-ong-ye-kung-14489494
  • See https://www.worldoil.com/news/2021/3/25/it-could-take-weeks-to-reopen-the-suez-canal-salvage-experts-say#.YFyBnfx_EuI.linkedin
  • See Suez Canal blockage is delaying an estimated $400 million an hour in goods, CNBC at : https://www.cnbc.com/2021/03/25/suez-canal-blockage-is-delaying-an-estimated-400-million-an-hour-in-goods.html?__source=sharebar|twitter&par=sharebar
  • ee https://asia.nikkei.com/Business/Transportation/Stranded-Suez-ship-s-owner-insurers-face-millions-in-claims
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