Logistics Economy

The Suez blockade: a word of warning

The Suez Canal blockade has underlined the key role this infrastructure plays as a way of passage in the world economy, especially the European one. With the exponential increase of the European foreign trade with Asia and the slow, but inexorable and proportional decrease in trade with America, the Suez Canal is even more important for Europe than during the turbulent second half of the 20th century, specifically during the Arab-Israeli conflict which closed the channel during long periods of time.

Posted on 04.01.2021

Jordi Torrent

Jordi Torrent is the Strategy Manager at Port de Barcelona.

In the short term, the Suez Canal incident will cause changes in shipping lines rotations, congestion in ports and operational problems that are not new in European docks. (Creative Commons)

The importance of the Suez Canal lies in the increase of commercial exchanges with Asia and its greater fragility, due to the growth of ship size, especially container ships and energy bulk carriers, which cannot pass through other communication routes, such as the Panama canal.

The gigantism of merchant ships has allowed an exponential growth in international trade and, therefore, the reduction of global poverty, logistics costs and greenhouse gas emissions (GHG) per unit or tonne transported. However, it also carries risks, as proved by the recent blockade.

Container ship size: a turning point?

The recent incident involving the ship Ever Given, which blocked the Suez Canal for six days, affecting more than 200 vessels, brings up at least three issues intensely debated in recent years.

The first one refers to the gigantism of ship sizes. Despite its considerable contribution towards greater environmental, operational and financial efficiency in world maritime transport, it also represents a high risk due to the concentration of the cargo from a large part of European exporters and importers in a single ship.

Are we at a tipping point? Will merchant ships stop growing the way they have in the last two decades? Will there be a similar phenomenon to the one experienced by air transport, in which the largest aircraft (A-380) has been discontinued?

As it happened with air transport, maritime transport has long stopped navigating at the maximum possible speed, generating parallelisms between the disappearance of the Concorde and the widespread practice of slow steaming. Could the Ever Given incident in the Suez Canal help to slow, or even stop, the trend to build ever larger ships?

Is it time to look for alternative routes between Europe and Asia?

Since the Chinese government approved and promoted the Belt and Road Initiative (BRI) project, the growth of the rail route between China and Europe has received a new boost from some customers who will seek to diversify their transport routes and supply chains.

How far can the Eurasian railway connection grow? Is it sustainable without the financial support of the Chinese public authorities? On the other hand, when will the Cape of Good Hope route start to be used massively again? Nigeria, for example, already has more population than Spain, Italy and France combined and a growing middle class. It seems that it is only a matter of time before regular maritime services between Asian and the Gulf of Guinea countries develop and increase. And the Arctic Route will be a reality later than sooner due, unfortunately, to climate change.

The need for supply chain diversification

Multiple voices in Europe have pointed out the need to diversify supply sources for products, especially those with a high strategic value, such as medical material. The incident of these days further highlights this issue.

In recent years, for example, companies which centralize logistics in Europe and decentralize production in Asia have already moved part of their production closer to the Mediterranean (mainly Morocco and Turkey) in order to shorten transit times and be able to cope easily with consumer needs electronically.

However, can companies whose logistics are decentralized act in the same way? Is nearshoring feasible when the largest volume of the world's middle class is or soon will be in Asia and technological innovation in Far Eastern countries moves forward with giant steps?

With responsibilities and compensation fees still to be determined, the Suez Canal incident, happily resolved on March 29, will cause, in the short term, changes in the rotations of shipping lines, congestion in ports and operational problems that are not new in European docks.

Disruptions of all kinds are becoming more frequent. In recent years we have survived cyberattacks, pandemics, extreme volatility in ocean freight prices and, now, the blockade of the Suez Canal. Ports and logistics chains must, therefore, get used to this type of situation. As seen in the last five years, this can become an inseparable part of our lives. Welcome to a globalized, interconnected and disruptive world.