- From food and fuel to minerals, Ever Given, the giant ship that blocked
Suez canal is going to make a lot of stuff super expensive. - On an average, over 50 ships pass through the canal and the Egyptian government makes about $16 million a day from the toll collected from these ships.
- The
world was already dealing with a shortage of containers since the pandemic - This blockade may, yet again, increase the cost of logistics which will eventually be paid by consumers around the world.
The cost to the government in Egypt On an average, over 50 ships pass through the canal. Egypt alone has made over $5 billion a year in 2019 and 2020, mostly from the toll received from the ships passing through the Suez Canal. That’s nearly $16 million lost in a day.Reports suggest that the Japanese firm Shoei Kisen KK, the owner of Ever Given, and its insurers could face claims from the Suez Canal Authority for loss of revenue. Not just that, other ships that are stuck because of this blockade could also file claims.
Container ships, as big as Ever Given— which is almost as big as the Empire State Building in New York— are likely to have insurance for hull and machinery damage up to $100-140 million, insurance sources told Reuters. However, if the trade waterway remains choked for a month, the loss of revenue for Cairo will be nearly half a billion dollars.
The container crunch in the world is set to get worse The world was already dealing with a shortage of containers since the pandemic. It had taken a huge toll on both exporters and importers in India.
For instance, according to data from Yes Securities, Sea freights from China to Mumbai pre‐Covid were at $600 per container. Two months ago, the freights were at $4,000 for a container, now it has dropped to $2,500 for a container. It’s still more than four times what it was a year ago.
The container shortage was expected to ease only by September 2021, according to industry estimates. Now, if more containers get stuck due to the Suez Canal, the logistics cost for nearly all items that are part of global trade will get more expensive.
Spot freight rates from the Persian Gulf to the Mediterranean had already hit the highest level since Feb 2, said S&P Global citing Platts data on March 24. Freight rates in the Mediterranean and Black Sea were also strengthening, with ships stuck in the long traffic jam tightening tonnage, shipping sources told the ratings firm.
All of this will trickle down to the common folk Add to that, when crude oil tankers, for example, don’t reach their destination on time, the price of fuel like petrol and diesel go up. The same goes for natural gas or liquefied petroleum gas (LPG) that is used in cooking gas cylinders.And this blockade is not going away in a hurry. The Suez Canal may remain blocked for at least a few more weeks, which means 10% of the global sea trade has to either wait or look for alternative routes that may increase the cost of transportation.
One way or another, this will trigger an increase in price for essential products like food and fuel. India is already seeing everyday items get more expensive, and this supply crunch due to the Ever Given — which has an all-Indian crew — will only make matters worse.
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