Navigation in the Suez Canal is partly suspended after tugs and diggers failed to dislodge a 400-m long container ship that got stuck in the canal. Efforts are being made to dislodge Ever Given, the vessel, with eight tugs working to straighten the ship for the third day.

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The Ever Given, registered in Panama, is owned by shipping firm Evergreen. It was bound for the Netherlands from China when it ran around diagonally across the southern canal on Tuesday. According to a Reuters report, the vessel had lost the ability to steer amid a dust storm.

Ever Given, that has been compared to skyscrapers, has blocked the transit of the canal for the better part of three days. It raises worries because the Suez Canal is an important artery in world trade for shipping products like oil and grains.

Suez Canal stretches between the Red Sea and the Mediterranean. And it is the shortest route between Asia and Europe. More than a billion tons of goods passed the canal in 20,000 ships in 2019 — roughly 50 ships a day.

It is one of the world's busiest and important trade route. A blockage of this kind spells trouble for not one but many industries across the globe.

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In pics: Giant container ship EverGreen gets stranded in Suez Canal

Global Energy Industry

Oil prices that had tumbled earlier this week on worries lockdown, sharply reversed on Wednesday as the news became known. On Thursday, US WTI crude futures dropped 2 percent after climbing 6 percent overnight.

Nearly 10 percent of the global oil and 8 percent of liquefied natural gas passes through the Canal. Russian companies use this route to export their oil to Asia. With this much traffic dependent on the canal, the blockage may fuel the oil prices. It may also lead to more expensive shipping container contracts, analysts said.

But, some other analysts think otherwise. While the blockage has had an "outsized impact on the oil market, it isn't a substantial transit route for crude," Marshall Steeves, of IHS Markit told MarketWatch. This is why Marshall believes a few days of slow-down is not that critical to the market.

A bigger issue for the oil market currently is the COVID-19 induced lockdowns.

Global Shipping Industry

With governments pumping liquidity in the world economies, the demand has bounced back. And so has the shipping volumes. Owing to this demand, Ever Given was as full as it could be when it became stuck.

The industry was already grappling with the shocks of container shortage and delay in unloading cargo on the US West Coast. Due to this, rates had soared in the past months. While shipping companies are yet to account for the impact of blockage on rates, analysts say it could stretch logistics providers thinner, and destabilize the market.

And the market is already reacting. The shares of Moller-Maersk — a global shipping leader — dropped 9 percent in two sessions after the vessel got lodged.

A key indicator for shipping rates, the Baltic Exchange Dry Index has jumped nearly 40 percent from the end of Feb — its highest jump since September 2019.

Global supply chains are grappling with uncertainties since economies went into a lockdown due to the pandemic. The overall shipping prices surged from $200 to $2000 when the economies opened. The prices may continue the upward trajectory if the blockage continues, analysts say.

Electronics Industry

The extent of the impact of this blockage on electronics makers is largely unknown. The industry is already suffering from a semiconductor chip crunch. But, many companies in the industry ship products by air. This is why, Alan Priestley of Gartner Research believes that the blockage would more likely impact the finished goods than the chip manufacturers.

While recent shortages have led to a surge in semiconductor prices, it is too early to to see if this disruption would push them higher, Priestley told WSJ.

The current scenario

The Suez Canal is an artery of world trade, connecting Asia, the Middle East, and Europe. And right now, both sides of this crucial canal are backed by vessels carrying goods. These vessels, among other products, also consists of 10 million barrels of oil.

Currently, eight tugboats are trying to dislodge the vessel, and according to Reuters, the first ship has moved. Still, it is hard to say how much time the recovery may take.

In the meantime, other vessels might start unloading the containers to lighten the vessel. If it lasts weeks, shippers will have to start making difficult calculations whether it may be better to turn south and sail Africa's Cape of Good Hope. Either way, the cargo will be delayed.

First Published:Mar 25, 2021 8:17 PM IST