Suez Canal Blockage may Choke India’s Trade, Supply Chain

The Suez Canal blockage that has disrupted east-west shipping could impact India’s trade and curtail key manufacturing supplies while raising transport costs as shipping rates spike due to the crisis.

India’s shipments of oil, textiles, furniture, cotton, auto components and machine parts to Europe, North America and South America could get delayed by 10-15 days after the 400-metre-long Ever Given ran aground on Tuesday and got wedged between the two banks, obstructing the canal.

On the imports side, oil, items of steel and raw materials such as scrap and machine parts used in assembly lines, basic chemicals such as phenol and aniline will get delayed. The blockage could result in a 5-15% hike in freight rates from India along key lines, according to an estimate by Shipsy, an export-import automation platform.

“This incident couldn’t come at a worse time, when the freight rates were just showing signs of softening after surging as much as 4x-8x across various lanes,” said Soham Chokshi, cofounder of Shipsy.

India’s trade with these geographies through the Suez Canal amounts to $200 billion annually.

Around 160 ships have been stuck in the 193-km long canal since Tuesday, waiting for authorities to refloat the vessel and clear the passage. On an average day, more than 50 ships cross the canal that connects the Mediterranean Sea and the Red Sea.

‘Europe may Hold Back Orders’

The route accounts for about 12% of global trade.

Crude prices fell after a brief spike as this is the lean season.

The delay will exacerbate the shortage of containers and further lift freight rates, exporters said, as the canal is one of the world’s busiest trade routes for oil and consumer goods shipments between Asia and Europe.

Shipping lines may have to go around the Cape of Good Hope if the channel isn’t cleared soon. That may take an additional seven-eight days and 500-800 tonnes more of fuel one way, depending on the speed, a former merchant navy captain said.

‘Normalcy likely in 2 Weeks’

“As per the current situation, we expect the blockage to be cleared at the canal in 7-10 days but normalcy will be returned only after two weeks,” said Ajay Sahai, director general and CEO, Federation of Indian Export Organisations.

Exports of engineering goods to Europe may become uneconomical, giving local foundries an edge, said Ravi Sehgal, MD of Kolkata-based engineering firm Carnation Industries Ltd.

“March-April is the time when demand picks up in Europe and now we expect them to hold back their orders,” Sehgal said. “Also, imports of items of steel and machine parts used in assembly lines will get impacted.”

India imports scrap from Africa, the US and Europe. Total imports of iron and steel in April-January 2020-21 were $6.5 billion.

Supply chain disruption

The delays caused to global supply chains will lead to goods piling up at keys ports of origin in the east, experts said. Supply chain disruptions could impact manufacturing further — many sectors such as automobiles and electronics are already facing shortages.

If the situation is not resolved quickly, west-bound ships from the east may start skipping lower-priority Indian ports to make up for lost time or reduce their lot size per sailing, experts said — known as blank sailing by the trade.

“Right now, it is a very fluid situation. However, the knock-on effects of this could be quite sizable, similar to how we are still dealing with the after-effects of the pandemic lockdowns,” said Sanjay Bhatia, cofounder of Freightwalla.

Global shipping leader Maersk said that nine of its vessels are anchored in the region, waiting for the waterway to open.