Shadow of Ever Given on container shipping

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The 20,000-TEU container vessel Ever Given got wedged in the Suez Canal. The canal was blocked for 6 days. This could not have come at a worse time, with the Covid-induced disruption of tonnage and containers. The container industry is reeling with a severe shortage of vessels and containers. Not so long ago, the excess in tonnage and containers was driving many lines to bankruptcy. This 6 days blockage would add fuel to fire. All the European services from the east are further delayed by a week. There would be a crowding of vessels in European main ports. Blank calls would follow suit from the east, followed by bunching ups. This takes a fewweeks to stabilise. But maritime law, regulations, both national and international, insurance and national pride would play out for a long while.

Winston Churchill said, …….war office is always preparing for the last war. Lets look at the implications. From our perspective, such a phenomenon is pretty rare. It was clearly a Black Swan event. The chances of this happening again are extremely miniscule. However, the industry will prepare for the last war. The Titanic sank. We had exacting regulations on life rafts and lifeboats. So, we can expect some more international regulations. At the same time, its a reputation issue for the Canal Authorities and the Egyptian government. They would try to push the blame on the vessel and its crew and may push up the costs for larger vessels in the future. They would make multiple tugs mandatory or restrict timings etc. for vessels of certain length or draught. All these would add to costs and hit the freight or give birth to a new surcharge. If the owners manage to successfullydeclare General Average, the shippers and receivers would go through hell. Insurance premiums could skyrocket.

There is another question. How big will be considered too big? This could result in a situation where it would be very expensive for larger vessels to pass through the Suez Canal. Will the excessive costs of passage, insurance, compliance (new regulations) and (probably) new design outstrip the cost of 3,500 nautical miles of detour? Such a bottleneck may put an end to scaling up to bring costs down. Relatively smaller and more fuel-efficient ships could replace these goliaths connecting Asia and Europe.

Another new idea is being pushed around as Nearshoring. This means governments would push hard to have the places of supply close to their shores. They will not prefer to look up to China to supply them with toilet paper or things like that. The US would look at Mexico. The EU would look at the eastern bloc countries. India is already making it a political sloganeering to Make in India. Globalisation may take a pause and be replaced with Localisation. These changes would be slower and surer. We are looking at an extended dry summer in our industry when those changes start taking root.