The Impact of the Suez Canal Blockage

On March 29,2021, the Suez Canal Authority’s Chairman announced the successful refloating of the ship Ever Given, one of the largest container ships in the world. This represents a success, as the ship's blockage lasted around one week. Contrary to expert opinion, the refloating process occurred much faster than their original estimate of a few weeks. Economic impacts of the incident remain unknown, as the world attempts to learn and recover from this large-scale setback.

The Suez Canal officially opened in 1869 and since then has been one of the most important trade routes in the world. It has significantly eased trade among Europe, Asia, and the Middle East. Around 12 percent of global trade passes through the Suez Canal, so a blockage of any proportion is likely to significantly impact the global economy. Lloyd’s list estimates that the flow of goods in the canal equates to around $9.6 billion each day. The German insurance company Allianz has estimated a loss of $6-10 billion of global trade for each day of immobilization and -0.2/-0.4pp in annual trade growth for every week of blockage.

Ships travelling through the Suez Canal transport several different kinds of goods. Many of them are industrial goods that firms use to manufacture finished products. The global supply chain, at the time of the blockage, was already strained by the pandemic’s economic consequences. A further reduction in the supply of industrial goods could cause a rise in both their price and consequently in the price of finished products. In addition, experts warn that the cost of shipping goods to Europe from Asia may rise. Several individual firms might sadly discover that they cannot sustain production under new conditions and prices, especially because many of them have already been heavily hit by the economic consequences of COVID-19.

One hypothesis is that the economic impact of the blockage was limited by supply constraints imposed by the pandemic. However, data from show that this hypothesis does not hold water: the average daily number of container ships, dry bulkers, and oil tankers that transit the Suez Canal have been relatively stable from January 2019 to February 2021.

This event has posed a structural challenge. As container ships grow to become larger and more modern over time, the century-old canal will almost certainly require expansion and remodelling to conform to these changes. Policies addressing these issues will likely be implemented to avoid a similar occurrence in the future.

It cannot be stressed enough that, thanks to the massive conjunct effort of several authorities and the help of favourable tides, the blockage has had a restricted duration. The possible cascade effort feared by many experts will hopefully have a limited impact. Recovery time, as a result, may be reduced significantly. In the covering weeks, European ports will likely be overwhelmed, shipping companies will have to reschedule their journey planning, and firms will need to get by until shipments normalise again.