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BERN, Switzerland: International waterways are important, only a few more than the Suez Canal. According to the Canal Authority, more than 1 billion tons of cargo were carried through the Egyptian waterway in 2019, roughly four times the tonnage that flows through the Panama Canal.

Europe in particular is dependent on the canal for the supply of energy, raw materials, consumer goods and components from Asia and the Middle East. When the giant cargo ship Ever Given ran aground on Tuesday and clogged this important artery of world trade, fear quickly set in.

When it emerged that the ship could be trapped by Wednesday next week, the ripple effect was felt far and wide – well beyond the offices of ship owners and operators and their insurance companies.

The Ever Given belongs to the Japanese Shoei Kisen Kaisha and is operated by the Taiwanese company Evergreen. Around $ 10 billion worth of goods pass through the canal each day, but according to IHS Markit, the Ever Given alone is valued at $ 1 billion.

The canal has been in continuous operation since its inauguration in 1869, with only the briefest interruptions between 1957 and 1958 when then Egyptian President Gamal Abdel Nasser nationalized the waterway, and later between 1967 and 1973 due to the two Arab-Israeli wars.

The canal has been functioning smoothly for the most part for the past 50 years or more. And if at all, its importance has increased in parallel with globalization and strengthened the links between the Orient and the Occident.

It is therefore not surprising that this temporary impasse creates far greater problems than simply removing an affected ship. The temporary closure of the Suez Canal highlights various issues related to ship size as well as the vulnerability of international waterways, global supply chains and imports.

Between 1980 and 2019, the global trade volume increased tenfold to 19.5 billion US dollars. This growth went hand in hand with the steadily growing size of ocean-going vessels to meet the growing demand. In fact, the Ever Given’s dimensions are truly enormous, at 1,444 feet long (roughly the height of the Empire State Building), 194 feet wide, and weighing more than 400 million pounds.

While waterways like Suez and Panama have undergone several major expansions and are regularly dredged – the last expansion of Suez was completed in 2015 – housing these huge ships is dangerous. The Tuesday incident is a case in point.

The question “How big is too big?” has annoyed authorities, shipyards, ship owners and operators alike. The question is also relevant to the insurance industry, which has to pick up the bill for ever given and any future incidents.

Another problem is how reliable just-in-time supply chains actually are. This question goes far beyond the safety of the seas. In the past four years, trade wars between the US and China have left severe rifts in global supply chains.

Reshoring when companies return goods to their country of origin has become increasingly common as manufacturers seek to protect their investments in the face of geopolitical tensions and unreliable supply chains.

If anything, the coronavirus (COVID-19) pandemic has exacerbated this trend. Last year countries fought for a limited supply of personal protective equipment (PPE). Now they are embroiled in a battle for access to vaccines.

These heightened political tensions show that more critical goods must be manufactured domestically, or at least on the same continent. For example, Pat Gelsinger, CEO of Intel, recently announced that the tech giant will soon be building more factories in the US and Europe to reduce reliance on external microchip supply chains from Asia.

IN THENUMBERS

12% share of world trade via Suez.

$ 9.6 billion worth of goods passing through the Canal each day.

19,000 ships to sail through the canal in 2020.

Just-in-time supply chains are like high-precision acrobatics, in which the entire service fails if even one component arrives with the slightest delay. As such, they are incredibly vulnerable, as evidenced by the Ever Given incident. Delayed components can jeopardize a company’s entire manufacturing process.

Even with experts, it can take up to a week to remove the Ever Given and clear the waterway. This is bad news for companies waiting for their cargo. With around $ 10 billion a day in business without delay, time is money.

Some ships were diverted around the Cape of Good Hope, extending their voyage an additional 6,000 miles around Africa and up to $ 400,000 in fuel costs depending on the size of the ship. No wonder the shipowners and operators on both ends of the Suez have planned their time to see how things develop.

And the problems don’t stop there. The pandemic has already turned the logistics of shipping containers on its head, resulting in a shortage of metal boxes. The cost of a 40-foot container has quadrupled in the past 12 months.

Inflationary pressures are not just affecting shipping costs. The closure of the Suez Canal, if it lasts too long, can also have an impact on the oil markets.

Fortunately, the Suez Canal has lost its importance as a shipping route for oil from the Gulf. On the one hand, Asia has become the most important customer for oil producers in the Gulf. While around 3.8 million barrels per day (bpd) flowed through Suez in the early 2000s, this volume has since fallen to 2.1 million bpd.

A backhoe loader excavates the keel of the Argo ship Ever Given, which is clamped over the Suez Canal and blocks traffic on the vital waterway. (Suez Canal Authority via AP)

The oil markets nonetheless rose on Tuesday and have fluctuated since then, ending at USD 64.66 / barrel in the early evening of Friday CET. Although an extended blockade is likely to affect crude oil supplies in Europe, demand is currently depressed due to COVID-19 restrictions and lockdowns on the continent.

There is also the fallback option of the Sumed pipeline from the Red Sea to the Mediterranean, which has a capacity of 2.5 million bpd and is currently largely unused due to production cuts by OPEC +.

All in all, the blockade of the Suez Canal has highlighted the weaknesses of international shipping lanes and the fragility of supply chains. While the blockade is likely to be cleared soon, it raises relevant questions about the size of the ships and how these giant ships could be housed on man-made waterways of the 19th and 20th centuries.

The incident will have short-term inflationary effects, particularly in Europe and the already overheated sea container market. The longer it takes to lift the Ever Given from the sandbanks in Suez, the greater the impact on supply chains and sea container markets.

And as freight has become a truly global business, the inflationary effects of container delays will be felt around the world.

While this is a serious marine incident, it could have been far worse. Since Ever Given is Japanese-owned and operated by Taiwan, events take place at Suez without the region’s usual geopolitical undercurrents lingering below the surface.

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• Cornelia Meyer is a PhD in economics with 30 years of experience in investment banking and industry. She is chairman and CEO of the management consultancy Meyer Resources. Twitter: @MeyerResources