How the Suez Canal traffic jam continues to play out
SMITH BRAIN TRUST – When the Ever Given container ship ran aground in a narrow stretch of the Suez Canal, it blocked the crucial shipping channel, and created a massive traffic jam. It was freed and refloated about six days later, but the ripple effects remain.
The disruption stalled ships in the Mediterranean and the Red Sea. And those delayed ships could add to congestion at U.S. ports, slowing U.S. supply chains, and resulting in goods shortages and price increases. The effects, says Maryland Smith’s Martin Dresner, could linger for months.
Dresner explains, pointing to a few key numbers.
The 400-meter-long Ever Given, which blocked the Suez Canal, closed a passage to about 10% of the world’s trade.
This reportedly translated to a blockage of the equivalent of 66,480 twenty-foot containers.
“Although the greatest number of containers delayed were destined for European ports, the stalled shipments included the equivalent of 362 containers of Indian pharmaceutical exports destined to the United States, along with 570 containers of furniture, and 476 of granite products,” says Dresner, professor and chair of the Department of Logistics, Business and Public Policy at the University of Maryland’s Robert H. Smith School of Business, citing data from the Wall Street Journal. “The delayed shipments to the U.S. could slow production in industries as diverse as pharmaceuticals and home building.”
Retailers, he says, are especially impacted by the subsequent congestion at the ports of Los Angeles and Long Beach. “Compounding this effect is the surge in pent-up U.S. consumer demand resulting from induced savings – closed restaurants, no foreign travel – and government pandemic paychecks,” Dresner says. “These factors, plus stringent workforce measures at the port to reduce the potential for viral spread, have overwhelmed West Coast port capacity. This means lower inventory levels for retailers and potential for higher consumer prices.”
Shippers can avoid West Coast congestion by rerouting through the Panama Canal to East Coast ports, but with a caveat. “Although congestion has not been as severe on the East Coast, there may not be sufficient capacity available to accommodate all the extra shipments backed up at Los Angeles/Long Beach,” Dresner says. “So, given the strength of the U.S. economy, the desire for consumer expenditures, and the need for raw materials for U.S. manufacturing, the congestion could take many months to clear.”
The situation underscores the United States’ dependency on global trade, Dresner says.
“Although the U.S. administration would like to lessen U.S. reliance on foreign sources for essential products, such as semiconductors and rare earth minerals, major changes in trade flows will take many years to bring about,” he says. “Established supply chains based in Asia and the requirements for billions of dollars in investments in U.S. capacity will make it difficult to reduce U.S. reliance on foreign trade.”
As long as the American consumer remains a key driver of the world economy, Dresner says, U.S. ports will likely remain busy – and vulnerable to potential global disruption.
GET SMITH BRAIN TRUST DELIVERED
TO YOUR INBOX EVERY WEEK