Please be advised:
Re-floating of Container Ship
- Reports from the morning hours of March 29 (local Egyptian time) indicate that a stranded Panama-flagged, Japanese-owned container ship, Ever Given, that has been blocking the Suez Canal for six days, was “partially” re-floated.
- According to a maritime services company, the vessel was refloated at 04:30 (local Egyptian time) and is currently being secured. The breakthrough in attempts to refloat the ship reportedly occurred after 27,000 cubic meters of sand were dug out following a six-day operation involving tugboats and dredgers.
- Tug boats are now reportedly operating at the site of the vessel to “straighten its course”. Additional reports citing “sources working inside the canal” said it had been refloated “roughly 65 percent of the way”.
- The ship has moved approximately 23 meters at the time of writing, which was reportedly aided by “higher-than-usual” spring tides.
- Suez Canal Authority (SCA) Chairman, Osama Rabie, reportedly stated on March 29 that “we are not finished yet, but it [the container ship] has moved”.
- Video footage on social media appears to depict that the stern of the boat has moved away from Suez Canal’s eastern bank.
- Satellite imagery of the container ship indicates that it has been dislodged from the eastern bank of the Canal and is still surrounded by tug boats.
- The 222,000-ton, 400 meter-long vessel, Ever Given, is one of the world’s largest container ships, with a 20,000 container capacity.
Backlog of Vessels & Economic Impact
- As of March 28, there were reportedly at least 369 ships stuck in a queue waiting to pass through the 193 km Suez Canal on both sides of the blockage.
- These include “dozens” of “container ships, bulk carriers, oil tankers, and liquefied natural gas (LNG) vessels”, per March 29 reports citing the SCA’s Rabie.
- It remains unclear when the Suez Canal will open to traffic.
- Following the reported re-floating of the ship, oil prices fell. Brent crude went down by one USD to 63.67 USD per barrel.
Assessments & Forecast:
- The partial refloating of the Ever Given constitutes a breakthrough in the ongoing six-day operation to dislodge the vessel from the eastern bank of the Suez Canal after it ran aground on March 23. The “higher than usual” spring tides likely contributed significantly to the freeing of the ship and bolstered the efforts by tug boats and dredgers, which had made progress from March 26 onwards by freeing the ship’s rudder and turning on the engines of the vessel. FORECAST: The ongoing rescue effort will likely require dredgers to remove large quantities of sand around the ship’s bow, which could take several days. Thus, given that the cargo vessel has only partially refloated and will require extra work to completely refloat and thereafter continue its journey through the Suez Canal, there are likely to be continued disruptions to travel through the waterway. This is also due to the immense backlog that has formed at the waterway, with a reported 369 ships stuck in a queue to pass through the Canal.
- FORECAST: Regardless of the dislodging of the container ship, the minimum six-day suspension of traffic through the Suez Canal, through which approximately 13 percent of global maritime trade, ten percent of oil shipments, and eight percent of LNG transit, will continue to have an impact on global supply chains over the coming days and possibly weeks. This has and will continue to primarily impact Asian and European-based companies initially, as the Suez Canal serves as a major maritime route for transit between these regions. However, it is liable to have a knock-on effect on other parts of the world by increasing delays and costs to importers and exporters of goods that are essential for assembly lines and retail. To mitigate this risk, the SCA may increase the number of ships that can pass through the canal, which reportedly is capped at a daily maximum of 106. This, in turn, may carry additional risks to vessels transiting through the area due to the difficulty in coordination with authorities and other ships, which will increase the chance of a miscalculated error. Moreover, although the increased number of vessels will facilitate continued transit by the vessels, destination ports in Europe such as Rotterdam and Antwerp, will face significant challenges in processing and unloading the increased quantities of cargo, which will increase delays at these locales and also add to the potential for error.
- The financial impact of the incident has been substantial and this is unlikely to subside over the coming days due to the backlog. Each day of continued blockage is estimated to disrupt approximately 9.6 billion USD of goods. Moreover, the cost of renting a cargo ship along routes between Asia and the Middle East has reportedly increased by up to 47 percent since March 23. This will be exacerbated by the costs incurred by shipowners that rerouted down the coast of Africa via the Cape of Good Hope, which will have added over a week, at the very least, to travel time. This will have a significant impact on fuel and operating costs as well as the potential penalties incurred by businesses due to the late delivery of goods.
- FORECAST: As previously assessed, the economic fallout from this maritime incident will also have an impact on insurance premiums, both in the immediate short-term and also over the coming months. Reports from March 26 stated that over three billion USD has been prepared for liability claims against the owner of the Ever Given. However, this may not be enough to cover the potential claims of the over 300 vessels stuck in the Suez Canal due to its blockage. Moreover, some of the vessels may seek to file claims against both the stranded ship’s insurer and their own, which would lead to substantial payouts and a long-term impact on insurance premiums for those traveling through the Suez Canal. This is especially due to the global coverage of the event, which will elevate perceptions of the risk attached to transit through the waterway.
- For Egypt specifically, this event is likely to have an adverse impact on its economy and international standing. In 2020, Egypt received 5.6 billion USD in revenue from travel through the Canal, which constituted two percent of its GDP and was a critical source of foreign currency for the country. Moreover, in 2015, President Abdel Fattah al-Sisi launched an 8.5 billion USD expansion of the Suez Canal, naming it the “New Suez Canal” in an effort to increase traffic through the strategic waterway. This project has failed to significantly increase revenue as expected and the current global attention on the Suez Canal is likely to add to the scrutiny of the waterway and its desirability as a transit route for international cargo, with other countries already proposing alternatives. Although the Suez Canal remains the shortest shipping route between Europe and Asia, the current incident highlights the fragility and potential for disruptions through the waterway. The long-term potential for alternative methods and routes for the transportation of cargo may undermine President Sisi’s and Egypt’s global status. It may also more broadly deter international investors due to the perceived inability of the Egyptian authorities to manage crises, especially due to recent indications that the running aground of the vessel may have been due to unspecified human error, which did not indicate on the part of whom, as well as inclement weather conditions.
- The backlog of vessels waiting in the Red Sea also poses an underlying security risk due to the ongoing conflict between the Yemen-based Houthis and the Saudi-led Coalition that backs Yemen’s President Abdrabbuh Mansur Hadi-led government. On March 28 alone, Saudi authorities announced that two Houthi-operated explosive-laden vessels, allegedly planning an “imminent attack”, were intercepted in the Red Sea in the vicinity of Yemen’s Hodeidah Governorate. Although a significant distance from the Suez Canal, there is likely to be a large increase in shipping traffic seeking to reach the waterway in order to compensate for disruptions. These ships may need to pass through areas near Yemen and Saudi Arabia where Houthis are known to deploy naval mines and explosive-laden vessels, which will slightly increase the risk of a security incident in this area. This is even if the Houthis do not intentionally conduct an attack, which would further damage its international reputation as a credible actor in the event of damage to a vessel or casualties to its crew.
- Those operating vessels through the Suez Canal on March 29 and over the coming days are advised to allot for disruptions to business continuity, including delivery delays, due to the ongoing cessation of maritime navigation through the waterway.
- Remain apprised of notifications issued by the Suez Canal Authority over the coming days for updates on the situation and any instructions for maritime operators to avoid further congestion of the strategic waterway.