Temporary Risk of Product Scarcity and Elevated Costs: Suez Canal vs Horn of Africa

"The market is betting that the issue might go on for a while."

"If you detour to the Cape of Good Hope, it will probably take at least one more week to reach the Netherlands from Shanghai ... if you have to detour, it should raise current freight rates further."

Kim Young-ho, analyst, Samsung Securities

 

"We see that the pirates are acting with greater impunity."

"They are spending more periods of time on board vessels. In one case, they were on board a vessel for more than 24 hours, totally unchallenged."

International Maritime Bureau (IMB) Director Michael Howlett 

"There is a risk there, and it's probably another reason why the ocean carriers will think twice before they actually go around the Horn (of Africa)."

Genevieve Giuliano, University of Southern California's Sol Price School of Public Policy

While piracy in Somalia has fallen in recent years, crime is thriving off the shores of West Africa.

Farah Abdi Warsameh / AP

 

Stuck on the horns of a dilemma, shipping has been inadvertently put on hold through the Suez Canal. Now, an alternative to waiting possibly several weeks for the mammoth vessel Ever Given to be freed, is to consider rounding the Horn of Africa. The accidental ramming of the side of the canal by a ship so long that the width of the canal holds it captive at either side of the canal until it is freed, while other cargo-carrying ships await their opportunity at either end to continue their journeys delivering cargo has created a maritime backlog of unprecedented proportions.

The fear of rerouting vessels through to Africa rather than wait for weeks for the Suez Canal to finally be cleared of the massive obstruction, is that of falling prey to pirates operating off both the West and East coasts of Africa. In their concern, shipping companies have appealed to the U.S. Navy in fear of the elevated threat of piracy should ships be rerouted, given the choice of anchoring with billions of dollars of cargo tied up at sea or deciding to embark on a lengthy and potentially risky route around Africa.

"Africa has the risk of piracy, especially in East Africa", said Zhao Qing-feng, office manager of the China Shipowners' Association from Shanghai, even as serious consideration is being given to the potential alternative. There was "nothing we can do" about cargo stuck on vessels outside the Suez Canal awaiting entrance, warned Rolf Habben Jensen, chief executive of Hapag-Lloyd, the world's fifth-largest container carrier. The focus is to have ships arrive at their intended destinations as soon as possible.

 

Supply chains concerns are of the utmost importance to manufacturers' dependence on container shipping. East Africa has long had a reputation for piracy, while a surge in kidnappings at sea and other maritime crimes have surged in recent months in West Africa, as well. Chief commercial officer Dimitris Maniatis of Seagull Maritime Security which provides ship guards explained that private security doesn't come cheap; between $5,000 to $10,000 each vessel should those waiting at the southern entrance of the Suez Canal need to turn and sail through the Gulf of Aden.

Bypassing the Suez Canal to travel around South Africa's Cape of Good Horn would effect the opportunity to steer clear of areas known to be dangerous off the coast of West Africa. While companies express their concerns that should the blockage continue their vessels could face piracy risks, the U.S. Navy observed that no impact on naval operations in the region has yet been noted. The decision of whether to reroute represented a "roll of the dice", in the words of the head of liner operations at Maersk Asia Pacific, James Wroe.

 

The Ever Given is stuck across the Suez Canal (Photo by Suez Canal Authority/Handout/AFP via Getty Images)

According to Rolf Jansen, three vessels in its alliance with other shipping companies had been diverted, as has the Ever Green, sister-ship to the Ever Given, the very vessel crammed widthwise in the Suez Canal. In Singapore and Tokyo similar rerouting decisions were "imminent", affecting a number of oil tankers and other vessels. Travelling from Singapore to Rotterdam via the Cape of Good Hope vessels would face added costs of $400,000 each vessel for the entire voyage.

Close to two hundred vessels were stranded either side of the Suez Canal, representing the choke point through which approximately twelve percent of global trade flows; a route critical for oil, gas and high-demand food commodities like coffee. Asian carmakers rely on the route to transport parts meant for European factories. Their delay raises the potential of plant stoppages across the U.K. and Europe should the blockage be extended.

Nissan is "assessing the impact on our operations", of which the Suez Canal is part of, shipping to Europe from Asia, while Honda is monitoring the situation. Carmakers maintain very little stock, relying on "just in time" delivery of components. Delivery delays at sea forces carmakers to turn to expensive air freighting of parts as an emergency measure. Rerouting cargo around southern Africa would add at least seven days and potentially force cancellation of other scheduled routes.

The Ever Given blocks the Suez Canal.

Satellite image ©2021 Maxar Technologies

Dutch and Japanese salvage specialists have a variety of theories on how best to proceed intending to free the Ever Given, presenting a formidable technical challenge complicated by inclement weather conditions. According to Hapag-Lloyd's Jansen it would "at least take a few weeks" for congestion at the Suez Canal to ease, even after the gigantic container ship is refloated.