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If things were already chaotic for global supply chains due to the ravaging effects of the health crisis, now that an enormous container ship is blocking both directions of the Suez Canal, global traders are in total “panic-mode,” as shipping delays and widespread supply chain disruptions have been quickly worsening due to traffic jams at both entrances of the canal. The blockage is causing prices of commodities, including oil and gas, to skyrocket while triggering shortages of several other products, such as food and clothing. That’s what we’re going to expose in this video.
In what seemed to be an abrupt accident, the Panama-flagged container ship called the Ever Given, owned by Evergreen Marine Corp., has run aground inside the Suez Canal, the world’s most important shipping lane, which connects the Red Sea with the Mediterranean. Considering the “megaship” is even larger than the Eiffel Tower, analysts say it might take weeks to unstuck the vessel and clear the path for other ships that have been blocked in there for days.
Shipping experts are stressing that this unexpected turn of events was “the worst-case scenario for global trading,” with refiners, operators, and producers risking to lose billions of dollars of time-sensitive products, while multiple countries across Europe, as well as the United States, are on the verge of experiencing a massive inflationary spike in prices of several other goods over the next few weeks.
The 120-mile long canal is the most trafficked waterway in the world and a chokepoint for the global oil trade. It is the main passage for chemical tanker ships to haul crude and other crude products from the Middle East to Europe and the United States. Nearly 12% of global trade and 10% of liquefied natural gas cross the waterway every day.
At a time when shipping companies have already been struggling for a prolonged period with distribution strains provoked by the sanitary outbreak, the current maritime transportation halt may have catastrophic effects on the overall inflation outlook, especially considering the world was already dealing with a containership shortage that has pushed the cost of shipping up as much as 400 percent. While ports remain overwhelmed, slowing down the pace of global trade, American consumers’ demand for products foreign-made products keeps reaching unprecedented highs, which in turn, is causing prices of several goods to skyrocket.
Over the past few weeks, the cost of transporting goods from Asia to the U.S. East Coast has increased to over $5,000 per FEU compared to $2,775 per FEU in March last year. Considering that the cargo ship blocking the Suez Canal is holding up traffic that carries approximately $10 billion worth of goods every day, losses of time-sensitive and perishable products, such as food and medicine, will not only cause a devastating economic fallout but also trigger shortages over the coming weeks.
Right after the incident, oil prices surged, with Brent crude oil increasing by 5.77 per cent to $64.3 per barrel. On the average day, 1 million barrels of crude and 1.4 million barrels of gasoline flow through the canal, just as other refined petroleum products such as jet fuel. The blockage will inevitably make energy concerns worse, as the delivery of liquified natural gas has been delayed, several refineries and manufacturing plants may have to slow down production and even shut down some facilities for the time being.
On top of that, the report emphasizes that car manufacturers will be tremendously impacted as there is an ongoing shortage of auto parts. Over the past few months, automakers predicted there would be a slump in demand and did not order or canceled orders for chips. However, recently, consumer demand fueled by the massive amounts of government relief and stimulus money has remarkably increased, and car manufacturers “were caught short and their efforts to catch up have been complicated, and made more expensive, by the messy state of their supply chains”.
The multiple – and unsuccessful – attempts to refloat the ship are the perfect example of how we aren’t prepared to deal with unexpected disturbances, and therefore, bound to face panicked reactions and chaotic breakdowns as there are no alternative plans or safety measures to avoid the occurrence of generalized supply collapses.
And the longer the blockage lingers, the worse the impacts will be. That is to say, we must all get ready for a new reality that involves constant shortages, continuous collapses, and extremely inflated prices. As the world jumps from one crisis to the other, the only thing we can do is prepare for the storm. Dark clouds are on the horizon, and you should keep tuned to the next global developments here on Epic Economist channel.
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