The Suez Canal Accident’s Impact on Global Supply Chains

Critical Chanel Could Be Blocked for Weeks

Earlier this week, a container ship weighing over 200,000 tons became lodged in the Suez Canal, blocking traffic through the critical channel. A team is working to remove the ship using tugboats, helicopters, and other equipment, but authorities have warned that the canal could be blocked for days or even weeks.

The Suez Canal connects European and Asian markets. It is an important part of the supply chain for oil products refined in Europe and crude oil from North African and Black Sea ports. It is also a crucial part of supply chains for products ranging from electronics to machinery. In 2020, almost 19,000 ships passed through the channel—an average of about 50 ships per day. The accident is beginning to have ripple effects on supply chains across a number of industries.

Oil Prices and Shipping Rates Could Rise

Oil prices were down earlier this week because of worries about new COVID-19 lockdowns, but news of the Suez Canal blockage caused the price of oil to spike. Almost 10% of global oil and 8% of liquified natural gas is routed through the canal. Some analysts expect that oil prices could continue to climb if the canal remains blocked for a significant period.

Shipping rates around the world have been soaring over the past few months. Demand for shipping tumbled in the early months of the pandemic, but came roaring back as people purchased goods online during lockdowns. The industry has been grappling with a container shortage and logistical difficulties in ports this year. The Suez Canal being blocked puts further strain on the global shipping industry and analysts believe shipping rates could be pushed even higher.

The Chip Shortage Could Be Exacerbated

A number of industries are currently being strained by the global chip shortage. The problem has been exacerbated by a recent fire at a Japanese chip manufacturing plant, the winter storm in Texas, and backlogs at ports in California. The blocked waterway could further contribute to the chip shortage.

Ships which normally go through the Suez Canal can be rerouted around the Cape of Good Hope, but this is a more costly and time consuming route. Investors across a wide swath of industries will be eagerly watching as efforts to dislodge the ship continue.

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