In the ever-evolving landscape of global shipping, recent crises in the Red Sea have drawn striking parallels to the Suez Canal debacle of 2021. As international shippers and supply chain teams brace for potential disruptions, it's crucial to understand the similarities and differences between these crises to formulate informed strategies for the future.
Suez Canal Crisis of 2021: A recap
The Suez Canal crisis unfolded in March 2021 when the Ever Given, a colossal container ship, blocked the vital waterway connecting the Mediterranean Sea to the Red Sea. The incident, caused by human error during a sandstorm, resulted in a six-day blockade, disrupting global supply chains and causing significant financial losses. The crisis underscored the vulnerability of a key maritime trade route, impacting various industries and prompting a reevaluation of shipping strategies.
The Red Sea Crisis: Geopolitical unrest and security threats
Currently, the Red Sea is grappling with its own set of challenges, marked by geopolitical tensions and security threats. The focus of this crisis is the Bab el-Mandeb Strait, a narrow passage connecting the Red Sea to the Gulf of Aden. This region has become a hotspot for conflicts, including the ongoing Yemeni conflict and piracy, posing unique threats to global shipping.
What caused the two crises?
Suez Canal Crisis
The Suez Canal Crisis was primarily triggered by a combination of human error and adverse weather conditions, specifically poor visibility during a sandstorm. The navigational challenges posed by reduced visibility contributed to the Ever Given, a massive container ship, running aground and obstructing the critical waterway.
Red Sea Crisis
In contrast, the Red Sea Crisis stems from complex geopolitical tensions, ongoing conflicts, particularly the Yemeni conflict, and the persistent threat of piracy in the region. The multifaceted nature of these factors makes the Red Sea Crisis more intricate, involving not only maritime challenges but also political and security dynamics.
Impact on shipping: Similarities and differences
Suez Canal Crisis
The repercussions of the Suez Canal Crisis reverberated across the global shipping industry. The obstruction disrupted established supply chains, leading to delayed shipments of a wide range of goods, including consumer products, oil, and manufacturing components. Financial losses incurred during the crisis were substantial, affecting shipping companies, insurers, and the businesses relying on the timely delivery of goods. Experts say an estimated $9.6 billion dollars in trade was held up each day the ship was stuck.
Red Sea Crisis
The Red Sea Crisis is an ongoing, unique challenge for shippers and supply chains, coinciding with the disruptive Chinese New Year holidays and the drought in Panama.
1. Threatened oil supply disruptions
The Bab el-Mandeb Strait, a critical chokepoint in the Red Sea, is integral to oil exports from the Middle East to Europe and the United States. Any disruption in this region could lead to potential oil supply disruptions.
2. Higher shipping costs
Increased security measures and rerouting vessels contribute to higher shipping costs impacting the overall cost of goods. The Red Sea crisis is resulting faster rate increases than the start of the Covid-19 pandemic. Xeneta’s recent data shows shipping costs from the Far East to Europe spiked more than 200% in the first 52 days of the Suez crisis, outpacing the increase in rates seen during the first 52 days of the pandemic.
3. Increased amount of shipment emissions
Recent data from Sea Intelligence underscores the environmental toll of the crisis. The diversion of hundreds of cargo ships over 4,000 miles and the shift to air freight are projected to elevate CO2 emissions by approximately 260% and 354% on routes between Asia and Northern Europe and the Mediterranean. Given that shipping already contributes nearly 3% to global emissions, the longer sailing distances around the Cape of Good Hope are anticipated to lead to a significant and sustained increase in emissions for the sector. Moreover, if vessels attempt to compensate for lost time on extended routes by accelerating their speed, emissions could surge even higher.
4. Carrier volatility and surcharges
According to Lars Jensen’s analysis, he highlights a concerning trend where surcharges imposed by carriers surpass the actual costs of rerouting around southern Africa. This raises concerns of carriers turning these surcharges into a new profit center, capitalizing on the turmoil in the Middle East and the challenges faced by US shippers dealing with reduced demand and escalating costs.
5. Container shortage
The Red Sea Crisis is leading to equipment shortages at Asian ports across various trade lanes due to extended transit times and limited global ocean freight capacity. Some ports may witness shortages of empty containers due to delayed vessel arrivals, while others may experience periodic accumulations of empty containers, further complicating the logistics of global trade.
Two different outcomes
Suez Canal Crisis resolved after six days
The Suez Canal Crisis was resolved comparatively swiftly, with international efforts leading to the successful refloating of the Ever Given after six days. Once the vessel was dislodged and the canal cleared, shipping resumed through the crucial waterway, bringing relief to the affected supply chains.
Red Sea Crisis persists as an ongoing conflict
In contrast, the Red Sea Crisis persists due to the intricate web of geopolitical factors involved. Ongoing conflicts, security challenges, and political complexities make it hard to resolve quickly. The crisis needs a united global effort, showing how tough it is to handle security threats to crucial sea routes.
While the Suez Canal crisis of 2021 and the Red Sea crisis have distinct causes and locations, both underscore the vulnerabilities of global shipping routes. Stakeholders in the shipping industry must remain vigilant, adapt their strategies, and collaborate internationally to address the unique challenges posed by the Red Sea crisis. As global shippers and supply chain teams navigate these troubled waters, lessons learned from past crises will be invaluable in ensuring resilience and adaptability in the face of evolving challenges.