energy

Op-Ed: Suez Canal Shutdown Highlights Another Weak Link in Global Supply Chain

Suez Canal Authority | Reuters
  • The Suez Canal is a critical artery, and the fear has been it could be shut down by terrorism or even a military action, not the stranding of a commercial container ship.
  • The Suez has become a super highway for giant container ships carrying all kinds of goods from cell phones to sneakers, and its disruption highlights another vulnerability in global supply chains.
  • The canal has long served as an important route for oil, and more recently it has become even more key for the transport of oil and natural gas cargoes to and from all parts of the world.

The massive Ever Given container ship, stuck in the Suez Canal, provides a vivid image for a world economy whose global supply chains were already disrupted.

The stranded Ever Given has put a chokehold on one of the most critical chokepoints in the world economy.  The Suez Canal is the shortcut between East and West, cutting voyages between Asia and Europe by 3000 miles. 

For that reason, it has long been at the top of the list of "chokepoints" in world commerce – at risk from disruption resulting from war or terrorism.  And with good reason.  It was shut down twice by war – the Suez Crisis of 1956, and the 1967 Arab-Israeli War, which closed the canal down for eight years. 

Although there have been brief interruptions from shipping before, there's been nothing like the current blockage that is disrupting billions of dollars in trade.  In previous decades, the Suez Canal was most important as  the critical conduit for Middle Eastern oil supplies going west.

During the 1956 Suez Crisis, Britain's prime minister feared Europe's being "strangled to death" without Mideast oil.  But it is now critical not only for tankers taking oil from the Middle East to Europe and North America, but also as the number one route for container ships.

Containerization was only born in 1956, the same year as the Suez Crisis, with the loading of the first container ship in the Port of Newark in New Jersey. In terms of tonnage, 50% going through the canal today are container ships, and 18% oil.

 This partly reflects the changing pattern of world oil trade, with more Middle East oil now heading to Asia.  The canal is also important for shipments of liquefied natural gas going west. 

 And the Ever Given was on the standard run for container ships, carrying about 20,000 containers – metal boxes – likely holding everything from running shoes and sweat shirts and furniture to laptop computers, smart phones, and solar panels.  It departed Shanghai, the largest container port in the world, enroute to Rotterdam, from which the containers would be distributed across Europe. 

 What became apparent to me as I was writing The New Map was not only how containerization has become the backbone of global commerce, but also how critical it has become to China's economic advance and its role as "workshop of the world." China's rapid economic growth would not have been possible without the container fleets to carry its goods to global markets with very little additional cost.

 Seven of the world's top ten container ports  are Chinese – Shanghai the largest – and China normally accounts for over 40% of the world's container shipments.  

The dependence of the world on containerization only became fully clear when the coronavirus temporarily shut down much of the world trade in 2020, with the effects continuing to be felt today. But now in 2021, the chokehold on the Suez Canal clearly demonstrates, despite all the tensions among governments,  how interconnected the world economy is.

In the search for efficiency, container ships have grown to mega-size.  At a quarter mile, the length of the Ever Given is 25% greater than the height of the Eiffel Tower.  While scale  has been critical to facilitating global trade, the size represented by the Ever Given has, at least for the next few days,  reached a level that is vexing world trade. As it remains stranded astride the canal, it is "too big to pass." 

Daniel Yergin, vice chairman of IHS Markit, is a Pulitzer Prize winning author. His latest book is
"The New Map: Energy, Climate, and the Clash of Nations."      
  

Copyright CNBCs - CNBC
Contact Us