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  • Writer's pictureStephen Fodor

The Suez Canal saga continues causing fuel rationing in Seria and more strain on the supply chain

Monday Morning Wake Up Call

March 29, 2021

Suez salvage operators consider removing cargo to lighten distressed vessel

(AmericanShipper) Efforts continued Sunday to dislodge a massive container ship that ran aground in the Suez Canal during a windstorm six days ago and is blocking hundreds of cargo vessels, but there is no immediate end in sight to the shipping crisis as the ripple effects pile up.

Two more large tug boats joined the operation to refloat the 20,000-TEU Ever Given, and there are reports that the vessel was moved about 95 feet so far with the help of dredging vessels and onshore diggers. The next refloating effort is scheduled to begin about 4 P.M. ET.

Osama Rabie, the head of the Suez Canal Authority, told an Egyptian television station that containers may have to be unloaded to lighten the massive vessel, which is operated by Taiwanese company Evergreen Marine, as reported by NBC News. He said officials have been in discussions with the U.S. about removing some of the cargo.

U.S. and Egyptian officials on Friday said the U.S. military will assist in reopening the Suez Canal, although what form the assistance could take remains unclear.

An estimated 12% of world trade flows through the canal.

More than 300 container vessels, oil tankers and bulk cargo vessels are blocked in both directions from using the critical trade shortcut between Europe and Asia. The blockage is exacerbating ongoing delays with ocean shipping associated with record trade volumes, a lack of extra ships to meet the demand, shortages of containers for loading imports and exports, port congestion, and coronavirus restrictions.

Lloyd’s List estimates that $9.5 billion worth of trade per day normally moves through the passageway. That figure does not include oil, gas and other energy products carried on bulk vessels.

More vessels continue to arrive each day at the Red Sea and Mediterranean entrances to the canal, increasing the length of the queue for passage.

Vessel operators are implementing contingency plans to prevent in-transit cargo from stacking up further, but options are limited.

Maersk (DXE: MAERB) the world’s largest container line operator, said in a customer update on Sunday that it had redirected 15 vessels around the southern tip of Africa based on estimates that the Ever Given salvage operation and subsequent clearance of backlogged vessels will take at least as long as the extra voyage time.

Maritime experts say it takes about seven to about 10 days of extra sailing time for vessels to travel around the Cape of Good Hope from Asia, depending on the destination in Europe. Based on how many vessels transit the Suez Canal on a daily basis, it could take close to two weeks to clear the existing backlog with the impact cascading up the line of vessels scheduled to arrive in the next month.

“New calculations on redirecting additional vessels will be made Monday considering the weekend’s salvage attempts,” the Maersk notice said.

Maersk has three vessels stuck in the canal and 27 waiting at anchor to enter, with two more expected to reach the queue Sunday and six more vessels en route.

CMA CGM, the fourth-largest box line, says it has a dozen vessels impacted by the delays, plus cargo on nine vessels operated by alliance partners, waiting outside Port Said in the Mediterranean or in the Red Sea. It said Saturday that it has diverted two box ships around the Cape of Good Hope to minimize impact on customers.

German shipping line Hapag Lloyd (DXE: HLAG) said it has nine vessels locked in the canal or at outside anchorage and six more being redirected around the Cape of Good Hope.

Mediterranean Shipping Co., the world’s second-largest container line, previously said it is rerouting 11 vessels around southern Africa and turning back two ships to discharge cargo at other ports and await further orders.

Syria forced to ration fuel as stricken ship keeps Suez Canal blocked

(CNN) The paralyzing effect of the stricken Ever Given container ship on global traffic became clear on Sunday as nearby Syria, already scarred by years of war, imposed fuel rationing to safeguard dwindling oil supplies.

Suez Canal officials hoped that high tide and dredging efforts could see the giant ship freed on Saturday night, four days after it ran aground. But despite progress in loosening the bow and freeing the rudder and propeller, the vessel remains wedged across the canal.

Dredging efforts continued Sunday, according to Ever Given's operator, Evergreen Marine, with attempts to refloat the vessel due to resume from 2 p.m. local time (9 a.m. ET).

Meanwhile, the backlog of ships waiting in the area has grown to 327, according to Leth Agencies, the canal's service provider. Of those, 151 are on the canal, 42 are at the midway point of Great Bitter Lake, and 134 are at Port Said, which connects to the Mediterranean Sea.

Syria's Ministry of Petroleum and Mineral Resources said the blockage of the Suez Canal had "hindered the oil supplies to Syria and delayed arrival of a tanker carrying oil and oil derivations to Syria," state-run SANA news reported.

Amid fears over fuel supplies, the Middle Eastern nation has been forced to ration "the available quantities of petroleum derivatives mainly diesel and benzene to ensure their vital availability for the longest possible time," SANA said Saturday.

The step has been taken "in order to guarantee the continued supply of basic services to Syrians such as bakeries, hospitals, water stations, communication centers, and other vital institutions," according to SANA, citing the ministry.

Syria will continue to ration oil supplies until "the return of normal movement of the navigation via the Suez Canal, which may take an unknown time," it added.

The Ever Given, a huge ship almost as long as the Empire State Building is tall, ran aground in the Egyptian canal on Tuesday after being caught in 40-knot winds and a sandstorm. Authorities are also investigating possible human or technical errors.

The blockage, in what is one of the world's busiest and most important waterways, could have a major impact on already stretched global supply chains, with disruption escalating with each day that passes.

A team of expert salvors from Dutch firm SMIT Salvage and Japan's Nippon Salvage -- who have worked on several high-profile operations in the past -- has been appointed to help the Suez Canal Authoriity re-float the ship, the charter company Evergreen Marine said.

Dredgers have been working to extract vast quantities of sand and mud from around the port side of the 224,000-ton vessel's bow.

"Having removed more than 20,000 tons of sand and mud, the dredging operation underway has succeeded in loosening the Ever Given's bow within the bank of the Suez Canal and the ship's stern has been cleared from the sand bank," Evergreen Marine said in an update Sunday.

"The rudder and propeller of the vessel are fully functional and expected to provide additional support to tugboats assigned to move the container ship from the accident site so that normal transit may again resume within the canal."

The head of the Suez Canal Authority (SCA), Osama Rabie, said in a live phone interview Sunday with Egypt's Extra News television channel that the Ever Given had shifted slightly on Saturday.

"We managed to move the ship from the bow side by 4 meters, and likewise from the stern side," Rabie said. "The dredging operations led to the ship moving, albeit a slight move, but it is a positive development, because in the first two days the ship was not moving at all."

Egypt is also making preparations so that if a decision to unload containers from the ship is made -- currently the third-case scenario -- there would be no further delay, Rabie said.

But, the SCA chairman added, to implement this plan would require assistance from the international community. One challenge is that specific equipment is required, including a crane high enough to remove containers from the ship's bow, which Egypt does not have.

Speaking at a news conference Saturday, Rabie said: "Plan C is the difficult one, the unloading operation. It's difficult because there are 18,000 containers, and there is no crane that can access the containers."

He said the United States, China, Greece and the United Arab Emirates had offered help.

In his phone interview Sunday, Rabie added that Egypt's President Abdul Fattah El-Sisi was checking in on a daily basis and advising on matters, including the decision to obtain the unloading equipment required in case they had to pursue that course of action.

Two additional heavy tugboats are expected to arrive at the Ever Given "presumably early evening" on Sunday, a spokesman for Boskalis, a sister company of SMIT Salvage, told CNN.

The pair have a combined pulling capacity of around 400 tons, said spokesman Martijn Schuttevaer. Once the tugboats arrive, it could take a few hours to hook up to the Ever Given, he said.

Boskalis' chief executive said Friday that he hoped those two tugs' extra pulling power -- combined with dredging, a high tide of 40 to 50 centimeters, and the "lever power" of the ship's stern being relatively free -- could be enough to wrest the container ship free.

A crane that could be used to remove containers from the ship's bow, should that plan fail, has also not yet arrived, according to Boskalis.

Speaking Saturday, Rabie said the reasons behind the accident remained unclear. "There are many factors or reasons, fast winds and the sandstorm could have been a reason but not the main reason -- it could have been a technical mistake or human error," he said. "There will be further investigations."

Meanwhile, billions of dollars' worth of vital cargo and sensitive products are backlogged on the hundreds of vessels whose way is blocked. Around a dozen of them are carrying livestock.

The EU director of NGO Animals International Gabriel Paun warned that thousands of animals being transported on the vessels -- mostly Romanian -- could be at risk of dying if the situation is not resolved in the next few days.

Suez Canal mishap puts battered supply chains under more pressure

(WashingtonPost) The blockage of the Suez Canal by a grounded container vessel threatens to deepen a supply chain crisis that has left global companies, port operators and shipping lines battling soaring costs and product shortages for more than a year. In Egypt on Saturday, specialized crews continued efforts to free the Ever Given, a 200,000-ton cargo carrier that has blocked the canal since it got stuck against the shore there Tuesday. Prices of commodities such as oil and East African coffee beans rose Friday as buyers bet on scarcity.

If the blockage persists, the disruption could ripple through the arteries of the global economy, affecting the flow of oil, chemicals, apparel, iron ore and manufactured goods. About 13 percent of world trade passes through the Suez Canal, according to Allianz, an investment firm. Even a return to normal operations in a week or so would leave supply chains struggling to work through the accumulated backlog.

“Ships, containers, goods — they all are not in the place we need them,” said Douglas Kent, executive vice president of strategy and alliances at the Association for Supply Chain Management. “So the knock-on impact is not going to be measured in days or weeks. It’s going to be measured in months.”

The European economy is more dependent on the Suez link, but the United States will also be affected if the channel can’t soon be cleared. At the White House, press secretary Jen Psaki said Friday that officials saw “potential impacts on energy markets” from the closure and had offered to help Egyptian officials try to dislodge the ship.

The Suez mishap caps a year of extraordinary tumult for companies involved in moving goods around the world. What began in early 2020 with shortages of personal protective equipment such as gowns and masks later morphed into semiconductor shortages that idled major General Motors and Ford plants.

A beached container ship choking one of the world’s vital maritime routes only adds a random note of bad luck to this serial supply chain nightmare.

“There wasn’t a lot of slack in the system, and this is a major artery,” said Phil Levy, chief economist of Flexport, a San Francisco-based freight forwarder. “That makes this a very big deal.”

Suez would be drawing less attention if the blockage had occurred at any other time. But the pandemic last year unleashed a rolling series of economic shutdowns that idled factories, first in China and later in Europe and the United States. The stop-and-go sequence disrupted traditional buying patterns on multiple continents.

In the United States, consumers trapped at home shifted their spending from such services as restaurants to imported goods needed for their new work-from-home lifestyle. The sudden shift moved faster than shippers and port officials could react.

The cost of shipping a standard container of goods from China to the West Coast has doubled since June. Prices on the China-to-Europe route have tripled since November, according to the Freightos Baltic Index.

With normal trade flows thrown out of whack, metal shipping containers piled up in some ports and ran short in others. Illness thinned the ranks of longshoremen on the docks even as dozens of container ships waited off the coast of California, like shoppers circling a mall parking lot. Once unloaded, goods were slowed by a persistent shortage of truckers.

“This week it’s the Suez Canal that’s clogged up, next week who knows what’s going to happen,” Jose Boisjoli, chief executive of BRP Inc., told investors this week.

The Canadian manufacturer said its inventories of snowmobiles, boats and other recreational vehicles are thin, and despite running factories at full speed, it will struggle to keep pace with consumer demand.

The Suez Canal opened for navigation in 1869, completing a dream that had eluded the pharaohs, the Romans and Napoleon Bonaparte. The 120-mile-long waterway has been closed five times in the years since, including briefly after the Egyptian government nationalized it in 1956 and for eight years following the 1967 Arab-Israeli war.

Major shipping lines now are deciding whether to wait out the delay or take another route. Hapag-Lloyd of Hamburg said it had six massive container ships idling near Suez in hopes of transiting the canal and already had rerouted six others around the southern tip of Africa.

One of those, the HMM Rotterdam, made a hard right turn early Friday at the western entrance to the Mediterranean to avoid the canal’s traffic jam. The 23,000-container vessel abandoned its route from the United Kingdom to Singapore via Suez and instead headed for the longer, costlier journey around Africa, according to maritime tracking services.

“It is now clear that the container lines do not believe in a rapid resolution in the Suez Canal,” Lars Jensen, chief executive of SeaIntelligence Consulting in Copenhagen, wrote in an online post.

Once normal canal traffic resumes, the accumulated backlog of cargo will flood into European ports “like ketchup out of a bottle,” he added.

Major ports on the U.S. East Coast also are likely to feel the effects. Some container ships that are scheduled to arrive in Norfolk next month will be late, said Joe Harris, a port spokesman.

At H.B. Fuller, a maker of adhesives, sealants and paint in Saint Paul, Minn., the Suez crisis is only compounding supply chain woes that include the recent bout of icy weather in Texas, which idled petrochemical plants. An internal supply chain task force, which tracks thousands of raw materials, is monitoring the Suez situation.

“It’s an issue that we’re watching very carefully. We’re tracking exactly what materials that our suppliers have that might be on those ships,” chief executive Jim Owens told investors this week.

The Suez mishap will reverberate through the global shipping industry.

Over the next several weeks, freight forwarders will negotiate their annual contracts with retailers and manufacturers that rely on global supply chains. Companies will face a choice between locking in today’s high prices for the next year or gambling that they will ease as the system rebalances, Levy said.

After a year of pandemic-related hiccups, the canal incident also could cause global executives to rethink hyper-efficient production strategies designed above all else to reduce costs. That “just-in-time” philosophy produced fatter profits but left companies vulnerable to unexpected events, such as a global pandemic or a container ship captain having a very bad day.

Even before the canal shutdown, P&F Industries, a maker of air-powered tools in Melville, N.Y., had added six to eight weeks to its delivery schedules because of pandemic-related disruptions. Executives also have increased their “safety stock” of inventory to cope with supply chain interruptions.

“But it’s a balance. We don’t want to buy too much; that consumes money,” said chief executive Richard Horowitz.

Companies that rely on ocean-spanning supply links need a better handle on what might go wrong, according to Kent. More than half of all companies do not have information on their supply chain beyond their immediate vendors, according to a study by his trade association and the Economist Intelligence Unit.

“I may know that I don’t have anything on that ship, but I may not know whether my supplier’s supplier does,” he said.

For now, economists say the canal closure could be a costly headache for specific companies. But it is unlikely to become a major impediment to the economic recovery.

“It’s not going to make or break the global economy,” said Gregory Daco, chief U.S. economist for Oxford Economics.

Apparel maker Oxford Industries, which sells the Tommy Bahama and Dockers brands, moves only 7 percent to 10 percent of its product through the canal, K. Scott Grassmyer, the company’s chief financial officer, said on an earnings call.

“We do have some goods on some containers, and then we’re looking at, if need be, some contingency plans,” he said, referring to goods that were about to leave the company’s overseas factories.

Commodities such as oil and African coffee rose about 4 percent on Friday. But robusta coffee remains about 10 percent less expensive than in September and oil is down from its year-to-date high earlier this month.

The canal incident may push shipping costs higher, which would add to inflationary pressures as the post-pandemic recovery proceeds. But any increase is likely to be too insignificant to require action by the Federal Reserve.

The coming months should see a gradual easing of the logjams. As economies reopen, consumers are likely to revert to their traditional spending patterns. That means more restaurant meals and movie theater visits and fewer purchases of laptops or televisions that need to be shipped from Asia.

“From a macro perspective, this is a temporary kink in the supply chain,” said Torsten Slok, chief economist for Apollo Global Management.

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