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The Suez Canal has reopened, but experts say you'll still have to wait 9 months for that couch to be delivered

Mar 30, 2021, 21:48 IST
Business Insider
The tanker is blocking the Suez Canal.Suez Canal Authority/ASSOCIATED PRESS
  • The Ever Given was unmoored from the Suez Canal on Monday.
  • Hundreds of ships are still waiting to pass through the Egyptian waterway.
  • Experts warn of a long term impact on the availability and price of goods due to the week-long logjam.
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The Suez Canal blockage may be cleared, but experts warn the impact will be seen on the supply chain for months to come.

The hulking cargo ship, the Ever Given, was unmoored from the Suez Canal on Monday, nearly a week after it became stuck, allowing a massive backlog of vessels to begin their transits through the vital passageway.

Around 12% of trade flows through the channel and the vessel blocked hundreds of ships from passing through the Egyptian waterway, costing about $400 million for every hour it did not move.

Data from Blue Yonder, a company that uses AI to track global shipments, found the blockage has added a delay time of 2-4 weeks to global delivery dates. These delays pile onto a host of shortages and shipping delays that have already driven back the availability of imported goods by several months.

Douglas Kent, executive vice president of strategy and alliances at the Association for Supply Chain Management, told CNBC moving the vessel was only the first step in addressing the supply chain crisis.

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"We might celebrate the success of releasing the ship and unblocking the Suez, but that's not the end of the story here," Kent said Monday, "It's definitely going to continue to backlog ports and other delivery mechanisms as a result, and then of course the chaos that disrupts thereafter."

The logjam will have a long term impact on global trade

Even though the Ever Given has been freed from the Suez Canal, the logjam has set off a chain of events that will cause several major impacts on imported goods, including potential shortages of toilet paper, coffee, furniture, and gas.

A toilet paper supply company that provides about one thirds of the world's toilet paper told Bloomberg on Wednesday it has already been forced to move back delivery dates to accommodate the logjam and delay in shipping container availability.

Jena Santoro, a risk intelligence analyst at Everstream Analytics, says the toilet paper supplier is one of many companies facing delays.

The blockage couldn't have come at a worse time, as the world starts to come out of the pandemic and suppliers struggle to overcome last year's manufacturing shutdowns in order to meet rising demand. In fact, the pandemic has caused several sectors of the economy to boom, including home goods and furniture - an industry that relies heavily on imports from China.

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Customers can expect to continue to see long delays on home goods, including furniture. During a third-quarter earnings call in February, La-Z-Boy executives said customers should expect delivery dates that are five to nine months out from the purchase date, due to the shipping container shortage - a situation that has only gotten worse since the Suez Canal blockage.

Santoro says consumers and suppliers will still see a long term impact on the availability of numerous imported goods.

"While efforts to normalize canal operations are underway, there are several reverberating impacts that can be expected from the week-long ordeal," Santoro told Insider. "Authorities estimate that the shutdown of the canal has impacted as much as 15% of the world's container shipping capacity. As such, reversing such impacts will take some time and require strategic adjustments be made by those operating in maritime freight."

Hundreds of ships are still waiting to pass through the Suez Canal

While the vessel has been moved, over 360 ships are still waiting to pass through the canal - a logjam that authorities estimate will take about three and a half days to clear or about $10 billion in lost trade per day, according to Santoro.

Many ships had already pursued alternate routes before the Ever Given was moved. These ships were forced to travel around the Cape of Good Hope, a journey that added two weeks, 15,000 miles, and about $26,000 per day in fuel costs, Santoro told Insider.

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The logjam will likely have a significant impact on the price of gas. About 7% of the world's oil passes through the channel. Santoro's sources say about one tenth of the world's daily oil consumption is still waiting to pass through the channel.

Gas prices have skyrocketed over the past month as demand rises and OPEC has been slow to boost production. These prices will only continue to go up.

The logjam added fuel to supply chain issues caused by the pandemic

The impact of the six-day Suez Canal logjam is piling on a growing global supply chain crisis. Even before the channel was blocked, customers and stores were seeing delays and shortages for key goods like furniture, imported foods, and electronics.

Fab Brasca, a global vice president at Blue Yonder, said long term effects of the Suez Canal jam will ultimately be felt the most by customers.

"With increased backlogs, the disruption to pricing, fulfillment, demand spikes and labor shortages are contributing to a torrent of effects, ultimately impacting consumers' pockets," he told Insider.

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Many companies will likely be forced to increase prices in order to maintain revenue against rising shipping costs and competition for shipping containers.

From California port delays to supply deficits caused by the Texas storm and computer chip shortages, customers face rising prices and limited options as commodities become increasingly difficult to obtain and produce. Several companies including Nike, Honda, and Samsung have already said they have been hampered by supply-chain issues.

Even countries that do not directly operate off the Suez Canal, which connects Europe to Asia, will undoubtedly see the impact through shipping container availability.

Ships like the Ever Given hold about 20,000 containers, meaning that the week-long backlog of ships trapped in the Suez Canal, as well as vessels forced to add two weeks to their journey through alternate routes, are adding fuel to the shipping container crisis - making delays on imported goods stretch even further out.

Brasca says the logjam at the Suez Canal is a symptom of greater issues with the global supply chain.

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"I think the dangerous perspective is to view something like this as a siloed, isolated event," Brasca said. "When you look at it in combination with other ongoing disruptions/crises - the closure of the Long Beach port due to a Covid-19 breakout; the global semiconductor shortage's impact on the auto industry, etc. - you are now looking at a combination of events of great significance and strain on the global, and ultimately local, supply chains."

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