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The Suez traffic jam and its ripple effect

EYES WIDE OPEN - Iris Gonzales (The Philippine Star) - May 6, 2021 - 12:00am

One ship, one narrow shipping canal, one strong dust storm, and suddenly global trade is in chaos.

Who was it who said that when the Suez Canal is in the news, the world must be in trouble? That truism certainly holds and the recent Suez Canal crisis has proven it.

It all started in the morning of March 23, when the Ever Given vessel, one of the largest container ship in the world, ran aground diagonally on the Suez Canal, the controversial 193-kilometer artificial waterway in Egypt where 20 to 30 percent of global shipments pass through.

The ship lost the ability to stir amid high winds and a dust storm, and ended up with its bow wedged in one bank of the canal and its stern nearly touching the other, according to 1articles from Australia’s ABC News and The Wall Street Journal.

Full moon

Thanks to a full moon on March 30 (seen in Manila’s skies on March 29) and its gravitational pull, which swelled the tide, salvage teams were able to dislodge the 1,300-foot container out from the canal.

But the damage was done. A month since the incident, shipping costs have surged even higher and the whole retail supply chain is dealing with a global trade disruption.

Don’t be surprised if some of the stuff you need — whether it’s the latest piece of electronics or skincare lotion — will not be available in the next few weeks or months. Shipments may still be stuck somewhere, one way or another.

The ship prevented the flow of goods for almost a week, disrupting global trade and triggering a fresh surge in container spot freight rates — a major component of trade costs.

As if all the difficulties brought about by the COVID-19 pandemic weren’t enough, this incident now poses an additional challenge to the world economy which is already grappling with the worst global crisis since the Great Depression.

On a larger scale, it has also exposed the fragility of the global supply chain.

“The Ever Given incident reminded the world just how much we rely on shipping. About 80 percent of the goods we consume are carried by ships, but we easily forget this,” said Jan Hoffmann, head of the trade and logistics branch of the United Nations Conference on Trade and Development (UNCTAD).

What does this mean for Filipinos?

Higher shipping costs hit consumers most of all as companies pass on the cost to buyers.

While our oil and petroleum imports do not pass through the Suez Canal, the surge in rates may still affect Filipino consumers.

Note that many of our most basic needs — medicines, clothing, electronics, processed food — are shipped in containers carried by vessels that go through hell and high waters instead of the more expensive air freight.

For Philippine exporters and importers, there will likewise be higher transportation costs.

Higher rates

“The ripples will hit most consumers,” Hoffmann said.

Indeed, container freight indices are on the rise again.

According to a recent article on The Loadstar, the North European component of the Freightos Baltic Index, the leading international freight rate index, recently jumped six percent to $7,791 per 40 feet — a huge 450 percent increase from a year ago.

The impact on freight rates has been greatest on trade routes to developing regions, where consumers and businesses can least afford it, UNCTAD said.

Shortage

The incident will also likely worsen the shortage of shipping capacity prompted by COVID-19 early on. The pandemic-related lockdown measures increased import demand for manufactured consumer goods as businesses stocked up.

“Carriers, ports, and shippers were all taken by surprise,” UNCTAD noted.

To avoid future shortages and imbalances, UNCTAD said there is a need to advance trade facilitation reforms, improve maritime trade tracking and forecasting, and strengthen national competition authorities to investigate potentially abusive practices in the shipping industry.

The goal is to keep ships moving, ports open, and cross border trade flowing, UNCTAD said.

Indeed, we’ve seen during this pandemic the importance of facilitating trade and the transport of goods. Delays and obstacles lead to shortages of necessary supplies.

Preventing abusive practices

It is also important to ensure that national competition authorities can monitor freight rates and market behavior to prevent abusive practices.

This is where the Philippine Competition Commission should come in, although I heard that shipping is already one of the antitrust body’s sector priorities. I hope a closer look into the industry would address abusive practices sooner than later.

The Philippines, after all, has the highest shipping cost of $592 per 20-foot container at full container load in Asia, according to the Export Development Council’s networking committee on transport and logistics, as revealed in a recent hearing at the House of Representatives. This is more than double the roughly $200 per 20-foot container rates in other Asian countries.

Proposals to regulate shipping rates charged by international shipping lines are now pending in Congress.

I hope all these efforts to address high shipping costs in the country bear fruit — and soonest or at least before the next maritime blockage happens, whether it’s in the Suez Canal again, in the Cape of Good Hope or anywhere in between.

 

 

Iris Gonzales’ email address is eyesgonzales@gmail.com. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com

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