Last week, a giant cargo ship got stuck in the Suez canal, effectively closing the passage.
Now, container ships of all sizes are piling up on both sides of the canal.
If that wasn't enough, vessel operators asked the US Navy to come to the region, fearing pirates could swoop in and cause havoc. Yesterday, workers were finally able to free the ship, allowing the channel to reopen after nearly a week of closure.
This blockage is going to have an outsized impact on the global economy.
First, the amount of trade volume going through the Suez is massive. This vital Egyptian link connecting the Indopacific with the Mediterranean sees nearly 12% of all global trade pass through it annually. Current estimates say that the blockage is knocking 400 million USD an hour in imports and exports.
Many of the goods in the containers are in various states of completion. While many are 'retail ready,' many others are byproducts ready for finishing in European factories.
Second, there's already a container shortage, which drives up shipping costs and increases delivery times. With empty ships blocked from returning to Asia, this glut will only move prices and turnaround times upwards.
Most importantly, though, the global economy is in an odd spot. In the past 12 months, we've been in uncharted territory. After the initial lockdown shock, we consumers switched from consuming goods and services to only goods.
This shift makes sense. With many of us stuck at home along with entertainment and travel shut, we've all been buying more stuff.
Now, with a vital route for getting goods and commodities (considerable amounts of oil and natural gas also pass through the canal) from Asia to Europe and even the American east coast closed, we could be seeing serious economic consequences that will last months. Keep your eyes here for how this saga plays out.
|