By Aarti Bansal
Maritime transport is the backbone of global trade. It underpins global supply chain linkages and economic interdependency, with shipping and ports estimated to constitute over 80 per cent of global merchandise trade. About 30 per cent of the global container traffic sails through waterway. So, when the pandemic broke out, the sector turned into a transit sending shockwaves across supply chains and regions. The pandemic has exposed world’s excessive dependence and critical vulnerability of supply chains on China. This event has accentuated the fragility of those supply chains. One ship was able to jeopardise global trade, one choked canal spurred a run in the oil market. A gust of the wind was able to topple the world economy. One single event managed to shake international trade for several days, triggering delivery delays and relevant economic losses. The grand capitalist system has suffered a near paralysis as the lynchpin of maritime trade snarling an expensive traffic. The globalisation skeptic Peter S Goodman remarks how this incident is a tribute to the limitations of globalisation. Although the crisis is now resolved but it is not yet over. It may take weeks more to fix the cripple supply chain and may be a few months to heal the economic damage.
The Strategic Suez
The Suez Canal that we see today is entirely different from what it was 150 years ago. However, it still reflects the shadow of European colonialism that continues to haunt the contemporary world. Besides it’s enduring location and strategic importance, it entails a dark history where it aided the European powers in their colonisation projects. Its construction started in 1869 and it took about 10 years to build one of the fastest and shortest sea routes between Asia and Europe. In its initial phases it was dogged by the hands of Egypt’s indentured labourers who were forced to work on the project on the threats of violence. So, besides costing around 100 million dollars, the canal also claimed the blood, sweat and tears of about 1.5 million workers. Egypt’s own rights to the canal were auctioned off in 1875 leaving its control to the French and the British empire. It was under the British control since 1875 until Arab nationalist Gamal Abdul Nasser nationalised it in 1956. It led to a tripartite aggression waged by France, Britain and Israel against Egypt which is famously known as the Suez Crisis of 1956. They advanced close to the canal but retaliated in a humiliating manner after being condemned by the US and thwarted by the Soviet Union. The canal had been Egyptian ever since. In 1967, Egypt closed the canal for almost a decade after the six-day long Arab Israeli War. 15 cargo ships also known as the yellow fleet struck in the canal for eight long years until it opened up in 1975. In 2015, president Abdul Fateh Al Sisi became the face of a huge 8.5-billion-dollar expansion of Suez Canal which allowed ships to sail in both direction at the same time.
This canal is a 193 km long sea level waterway connecting Red sea to the Mediterranean Sea, Indian ocean to the north Atlantic Ocean and ultimately Europe to Africa. It is a crucial infrastructure that has revolutionized the complete trajectory of world trade. The only other way round before this canal came into existence was to pass via cape of good hopes on the southern coast of African continent which is almost three times longer, much more expensive and even more risky to pass through the Gulf of Aden and Gulf of Guinea. According to the Bloomberg, 12 per cent of the global trade, 10 per cent of the world’s oil trade and eight per cent of the natural gas passes through this waterway. The iconic shipping journal Lloyds List estimates that the goods worth US$9.6 billion pass through the canal every day and more than 50 ships traverse the canal on an average day, carrying 1.2 billion tonnes of cargo. As per the Suez Canal Authority, in 2020, nearly 19,000 vessels with a net tonnage of 1.17 billion tonnes transited the canal, which is the second-highest load in the history of the Suez. According to Vortex, India is the largest importer of crude oil via Suez Canal importing around 5,00,000 barrels of crude oil per day leaving behind China, South Korea and Singapore. More than two third of India’s crude oil come from Gulf region. Among the exporters of crude product through Suez Canal, India ranks sixth in the order below Russia, Saudi Arabia, Iraq, Libya and Algeria at a little less than 2,00,000 barrels per day. The bigger the numbers, the harder the fall!
On March 23, the colossal MV Ever Given had blocked the world’s busiest shipping lane for six days after getting wedged sideways by the high winds rolling at a speed of 74km/hr. This 400m long and 59m wide giant cargo ship was one of the largest container ships in the world. Some weird comparisons found its equivalent in the length of the iconic Empire state building in New York. The blockade led the Egyptian waterways into complete inaction. Dhruva Jaishankar, Head of Observer Research Foundation’s (ORF’s) USA initiative, in a tweet represented how this ship is an incredible manifestation of globalisation. The ship is owned by the Japanese, managed by Germans, operated by Taiwan, registered by Panama and staffed by Indians. The ship also had Egyptian pilots canal on board who guided the ship in and out of the canal. It was sailing from Malaysia to the port city of Rotterdam in Netherlands and it was rescued by Dutch and Egyptian tugboaters. At the end of the day, human ingenuity and technology pulled through but not before a stern test. The efforts to free the channel involved round the clock digging the shore and drudging the vessel for six days. It took about 13 tugboats and the removal of thousands of tonnes of sand which was aided by some spring high tides in the full moon. After being stuck in a maritime traffic jam for a week, the vessel was eventually pulled free on March 29.
However, the effects of this temporary blockade were felt all along the globe ranging from local supply chains to the oil prices impacting countless businesses, domestic transport providers, retailers, supermarkets and manufacturers. It created a backlog tailback of around 365 vessels carrying billions of dollars of goods waited to transit on either side at the northern entrance of the canal at port Saeed, in the middle in an area called the bitter lakes and at the southern entrance at Suez. Lloyds says about US$5.1 billion of that traffic is westbound and US$4.5 billion is eastbound. The big blockage has held up about 9.7 billion dollars per day or 400 million dollars per hour in global trade.
For Egyptian citizens, it’s much more than these head scratching statistics. It’s a symbol of independence, sovereignty and defiance. Egypt has fought multiple wars for the possession of this 150-year-old waterway. It is the main source of foreign currency for the country. The Egyptian government made US$5.61 billion from the toll fee revenue in 2020. For a poor country like it accounts for about two per cent of its total GDP. The country earns US$13-14 million from the canal every day. However, the staggering week-long blockade made it all disappear. It has turned into a national crisis for Egypt. As the crisis now stands resolved, the canal authorities have seized the giant cargo ship on April 13, claiming 916 million dollars in terms of compensation for the lost revenue, damage to the canal, cost of equipment and labour that were used to free up the ship and also the harm to the reputation suffered. According to the SCA, they’ve referred to article 59 and 60 of Egypt’s maritime trade law which provides that the ship will remain seized until the amount is being paid in full. The canal CEO seeks compensation from worth US1billion but whom they’ll seek the compensation from is yet to be seen.
The blockage reinvigorates how important a handful of key maritime passages is to the whole global economy, as well as the strategic calculations of regional powers. It is a clear manifestation of volatile nature of global trade, transport and travel system. It raises long term serious questions about the Canal’s sustainability and the resilience of global supply chains. The mishap must be analysed beyond the short-term economic backlash. A transparent international investigation must be carried out to find out whether it was the wind storm, poor visibility, technical issue or the failure of piloting carried out by the Suez Canal authority. The investigation must include examining the sea worthiness of the ship and looking into its captain’s actions to help determine its causes.
Although we can’t deny how the shipping industry throughout the pandemic have continued to supply the fuel, food, medical equipment which has kept the world going. The whole world owes a massive debt of gratitude to the seafarers who’ve been manning that ship. Shipping has proved to be highly resilient but it has shown fragilities like this. Although the challenges of navigating through the canal are enormous and it requires precision to get the ships through. There is a dire need to focus on creating international authorities for more effective management who can supervise the conduct of frequent drills and exercises to practice for disasters; have suffice resources to ensure their continuity in crisis; and have an international regime with regulatory powers inspect all of them frequently.
-The writer is research intern with Strategic Studies Programme of Observer Research Foundation (ORF). The views expressed are personal and do not necessarily reflect the views of Raksha Anirveda