The aftermath and costs of the Suez Canal crisis

The aftermath and costs of the Suez Canal crisis
Source: Suez Canal Authority/Handout via Reuters
As it currently stands, the Suez Canal is responsible for about 12% of global trade. Approximately one million barrels of oil and roughly 8% of liquefied natural gas pass through the canal each day.

On March 23, a giant container ship – approximately 400 meters in length and 59 meters in width – became wedged across Egypt’s Suez Canal, blocking one of the world’s busiest trade routes. The 200,000 ton vessel was identified as the Ever Given.

Evergreen Marine, a Tawainese transport company that built the ship in 2018 and has maintained the operations of the Ever Given since, said in a public statement that the vessel was “suspected of being hit by a sudden strong wind, causing the hull to deviate from waterway and accidentally hit the bottom and run aground."

However, the Suez Canal Authority (SCA) told reporters that the SCA recorded the wind speed at the time at 40 knots and this was more than likely not the only cause of the ship becoming wedged.

“Strong winds and weather factors were not the main reasons for the ship’s grounding; there may have been technical or human errors," Lt. Gen. Osama Rabie, Chairman & Managing Director of the SCA, said at a press conference in Suez.

Admiral Rabie further clarified that further investigation would be needed to indicate whether external factors played a part in the stranding of the vessel. Lead investigator Captain Sayed Sheasha told Reuters that the investigation would include several factors, including evaluating the seaworthiness of the ship and examining the captain’s actions to help determine how the Ever Given ended up blocking the canal.

Freeing the vessel

The Ever Given maintained its position within the canal for six days before finally being released after a great deal of cooperation and effort from various maritime workers. Royal Boskalis Westminster N.V. – a Dutch dredging and heavy-lift company that provides international services relating to naval infrastructure – was asked to consult on the project.

Peter Berdowski, the chief executive of Boskalis, gave a complete account of the mission to news outlets within the Netherlands.

“The real work could only begin once the two powerful seagoing tugs arrived," Berdowski told NPO Radio 1 in an interview. “We always thought that what happened until that point would help a bit but wouldn’t be enough."

While the work of 14 tugboats primarily aided the ship’s release, the full moon benefited the maritime workers thanks to the assistance of the rising tide.

“We were helped hugely by the strength of the tide," Berdowski told the Dutch newspaper Het Financieele Dagblad. “You’re dealing with a force that is actually greater than that of the two seagoing tugs."

Costs of the blockage

As it currently stands, the Suez Canal is responsible for about 12% of global trade. Approximately one million barrels of oil and roughly 8% of liquefied natural gas pass through the canal each day. Lt. Gen. Osama Rabie indicated in a public statement that the cost to Egypt of the disruption was somewhere between US$12 million and US$15 million a day.

The blockage prevented nearly 400 ships from traveling through the canal. As each boat waited in line to eventually begin traveling again, data from Lloyd’s List showed the stranded ship was holding up an estimated US$9.6 billion in trade that would generally be moving through the canal.

Lt. Gen. Rabie is primarily concerned with conducting investigations to determine who is at fault for the crisis. Speaking to a local channel in Egypt, Lt. Gen. Rabie stated that “the amount of damage and losses, and how much the dredgers consumed, will be calculated. Estimates, God willing, will reach a billion dollars and a little bit more; this is the country’s right."

Lt. Gen. Rabie did not specify whether or not Egypt was willing to pay for the losses or if the country had sought compensation. However, on April 6, speaking to The Associated Press, he stated that the Suez Canal Authority was seeking over US$1 billion in compensation and was currently in settlement talks with Shoei Kisen Kaisha Ltd., the Japanese owner of the Ever Green.

“We are discussing with them a peaceful resolution to the matter without resorting to the judiciary," Rabie added.

Rising reinsurance rates

Another significant concern is the rising reinsurance rates from the influx of reinsurance claims from the hundreds of delayed ships during the crisis. Reinsurers help insurers cover claims for significant events such as hurricanes in return for part of the premium and typically raise rates after they experience substantial losses.

Reinsurance rates have already experienced upward pressure due to the COVID-19 pandemic. Willis Re – the reinsurance arm of Willis Towers Watson – released its reinsurance renewals report last week stating that global marine reinsurance rates generally saw “high single-digit" percentage point increases.

In addition to the current maritime crisis, the United States property reinsurance market has been hit by several catastrophes, including Winter Storm Uri in February, with rates up by as much as 25%, the report showed.

The global oil price fell as word spread that the giant cargo ship blocking the Suez Canal had been set free. Oil prices had been volatile during the period in which the vessel was stuck. However, following the announcement that the Ever Given had been freed, the cost of Brent crude, the international bench mark, fell about 2.5%, to US$63.90 a barrel.

While the cost of the blockage has been the primary talking point, Captain Andrew Kinsey, a senior marine-risk consultant for Allianz, told NPR that the continued growth in the size of ships is a significant concern for the maritime shipping and trading industry. While the enormous ship that blocked the canal was nearly the size of the Empire State Building, over 100 other ships currently traveling are approximately the same size.

In his interview with NPR, Kinsey stated that marine-risk consultants have “been trying to raise the issue for a very long time" and went so far as to call the Ever Given incident a possible indication of things to come.

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