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The Suez Canal Crisis - BCA Online BSc Ship Management Clinic, 26/03/21

In the world of shipping, this week the focus was largely monopolised by the events taking place in the Suez Canal with the heavily publicised grounding of the 20,388-teu mega-container vessel, M/V “EVER GIVEN”, resulting in the total blockage of the waterway for sea traffic in both directions.

The incident was analysed from a number of different perspectives in the weekly “Ship Management Clinic” online session for the BSc students at BCA.

Key points:

  • As of 26th March 2021: almost 170 vessels are waiting for transit (Sources: Vessels Value, Marine Traffic)
  • The blockage is costing $400 million an hour, as per Lloyd’s List calculations.
  • Lloyd's List values the canal's westbound traffic at roughly $5.1 billion a day, and eastbound traffic at around $4.5 billion a day.
  • About 10% of all global trade flows through the 120-mile-long (193-kilometer-long) canal.
  • The blockage is having knock-on effects (both positive and negative) on the global transportation supply chain of raw materials, energy, commodities, and containerised goods which was already under pressure due to the pandemic.
  • The 3 Ds: DURATION, DELAY, DISRUPTION

 

What is being done to rectify the situation?

The “EVER GIVEN” is managed by the Third-Party Ship Management (TPSM) company Bernard Schulte Management (BSM) who issued a media statement on 26/03/21 emphasising: “The focus is now on dredging to remove sand and mud from around the port side of the vessel’s bow. A specialised suction dredger, which can shift 2,000 cubic meters of material every hour, arrived on site on 25 March 2021 to support the ongoing dredging operations. Arrangements are also being made for high-capacity pumps to reduce the water levels in the forward void space of the vessel and the bow thruster room. Another attempt to re-float the vessel earlier today, 26 March 2021, was not successful. “

(Source: Marine Traffic)

(Source: Marine Traffic)

So, what are the options?

As can be seen in the above screenshot from Marine Traffic, there are other options apart from sitting around waiting in the congestion for the clearing of the canal - you can sail around Africa and many companies are already taking this decision of rerouting, aiming at the overall minimisation of the DELAY effect. Of course, this is adding sailing days and expenses (additional bunker costs as well as running costs) but could be the best option depending on how long it will take to refloat the vessel and clear the waterway (still unclear). So, it is a difficult decision of whether one should wait until traffic resumes or “bite the bullet” and initiate the sailing around the Cape of Good Hope (see comparison below).

Positive Effects

If vessels do start diverting towards the Cape, then there will be an increase in tonne-miles which will generally have the effect of boosting vessel utilisation rates and thus support higher vessel earnings in the short term.

As per reports from Tradewinds, Industry experts forecast that the “crisis” could provide a short-term boost to container rates, while tanker and bulker owners could also benefit due to the number of vessels tied-up in the congestion and effectively taken out of the global supply equation, as well as the renewed cargo interests from traders, cargo owners etc who will look to source new charters.

(Source: Vessels Value)

 

Impacts

 

Supply Chain: Severe disruption has been caused throughout an already stressed (by the pandemic) supply chain, a fact well illustrated by the following customer advisory issued by MSC, a major global container carrier, on 26/03/21 stating: “MSC expects this incident to have a very significant impact on the movement of containerized goods, disrupting supply chains beyond the existing challenges posed by the COVID-19 pandemic. We thank you for understanding that this incident is beyond MSC’s control and we welcome your close collaboration to try to ease the situation for you in any way possible. As a frequent user of the canal, MSC will continue to monitor the situation very closely for updates and we will seek to resume passage as soon as the authorities and salvors have cleared the obstacle and given the green light. We currently have no concrete information, or forecast, of when this will be. In the meantime, we have started to redirect some vessels in order to keep cargo flowing by other routes.” MSC then go on to list their service and schedule changes as a result of the incident, including the vessels rerouted via the Cape of Good Hope as mentioned earlier as a possible option. At least two vessels were also listed as having changed orders for alternative discharge of their containers at other ports.

Consumer Inventory: In addition to delaying thousands of containers loaded with consumer items, the stranded ship has also tied up empty containers, which are key for Chinese exports. The delay will also impact, for example, the arrival of U.S. imports that fill store shelves as well as U.S. manufacturing components.

Oil: About 1.9 million barrels of oil a day go through the canal, according to Lloyd's List. That's about 7% of all seaborne oil. The closure could affect shipments of oil and natural gas from the Mideast to Europe. S&P Global Platts Analytics said about 1 million barrels of crude and 1.4 million barrels of gasoline and other refined products flow from the Middle East and Asia north through the canal to Europe on the average day.

Products: Shipments of Europe-bound refined petroleum products such as gasoline and jet fuel also go through the canal, and they will be delayed. Burkhard said refineries in Europe could be pushed to temporarily increase production to pick up the slack, Burkhard said.

LNG: LNG Tankers using the Suez carry 8% to 10% of the world's liquefied natural gas, according to research analysts. As can be seen from the above diagram from Vessels Value only a few LNG shipments are near the canal currently.

Dry: As Tradewinds reports, on the dry side, analysts said there could be a positive impact for supramax and ultramax markets due to congestion with grain trade, steel products, scrap and other bulk cargoes being affected in the canal bottlenecks. 

Security: According to Dryad Global, with this temporary blockage of the Suez Canal and resultant congestion, there is considered to be an increased security risk to vessels within the lower Red Sea and Gulf of Aden (e.g. Piracy attacks) and vessels are recommended to increase their security levels if they are forced to stay in a fixed position.

 

Insurance Claims: Delay insurance is normally provided to owners and charterers based on a pre-agreed fixed daily indemnity number that could include charter hire or operating costs. Generally, cover is provided for delays of up to 21 days and the insurer will pay when delays are notified. However, according to Tradewinds, only about 10% of the world’s fleet has delay cover in place, leaving many shipowners and charterers having to recover losses through a legal route.

 

 

Causes?

Crisis Management and Incident Investigation theory necessitates a thorough and in-depth root cause analysis of the factors leading to an accident.

BSM’s initial statement did not offer any concrete information as clearly their investigation is still ongoing: “At the time of the incident the EVER GIVEN was transiting northbound through the canal en route to Rotterdam, Netherlands with two canal pilots onboard. Initial investigations suggest the vessel grounded due to strong wind. All 25 crew are safe and accounted for and they remain in good health and spirits. All crew are Indian nationals and remain onboard. They are working closely with all parties involved to re-float the vessel. The hard work and tireless professionalism of the Master and crew is greatly appreciated. There have been no reports of pollution or cargo damage and initial investigations rule out any mechanical or engine failure as a cause of the grounding.”

Although the increased vessel size does pose a higher risk of running aground in the Suez Canal, it is most likely that a combination of different factors played a role in the causation of the accident which usually involve both human factors as well as the potential for loss of power, steering or manoeuvrability.
 

Latest Situation:

At the time of writing, reports indicate that heavy dredging equipment from external contractors, are on their way to the Suez Canal to attempt the next refloating operation aiming for the expected more favourable spring high tide conditions over the weekend.

 

 

Apostolos Poulovassilis

Director, BCA