Troubled Waters: Effects of the Suez Blockage and the Quest for Alternative Routes

On March 23, one of the world’s largest shipping containers ran aground on the narrow part of the Suez Canal. This effectively blocked both sides of the prominent route for almost an entire week, stalling 422 ships. The event immediately attracted international attention, generating both serious trade concerns and hilarious memes.

More importantly, however, it highlighted the growing concerns around international trade and the global shipping industry.

The Ever Given ship has since been dislodged from its position and impounded on the canal’s Great Bitter Lake but the crisis carries on months later, especially for companies that had valuable products as part of the ship’s cargo. There were around 18,300 containers aboard the ship carrying millions of dollars worth of goods, which firms are still hoping to recover.

IKEA and Lenovo are among the companies that had products aboard the Ever Given. The drawn-out legal battle proves to make it more challenging for these big-name brands and other businesses involved in the incident. Initially, the Suez Canal Authority (SCA) filed a $916 million compensation claim on Shōei Kisen, the owner of the massive ship.

The SCA has since lowered its demands down to $550 million, including a $200 million deposit to secure the ship’s release. What’s worse is that companies that had goods on the ship may be forced to pay part of compensation under the “general average” maritime law principle.

“If somebody [the shipowners in this case] incurs an extraordinary expense for the common good, then everybody is asked to contribute to it,” explained the head of Cargo Casualty at Clyde & Co. Jai Sharma.

It also doesn’t help that the companies are being kept in the dark regarding the legal battle that’s taking place.

“There seems to be an ongoing shifting of blame and insurance wrangling taking place between the ship owners, Evergreen, and the Suez Canal authorities,” said Will Pearson, director of UK bicycle manufacturer Pearson 1860, who had around $100,000 worth of products on the Ever Given.

“We haven’t been informed of anything, we are completely powerless and left in the dark. I wish we were involved or even kept in the loop a little bit more, but we aren’t. It’s really not a great position to be in and it’s a hurdle most new businesses will struggle to get over,” echoed Snuggy UK co-founder Jack Griffiths.

Maritime shipping continues to be an integral part of furthering international trade and accelerating globalization. Moreover, the Suez Canal remains a vital shipping route that easily connects Europe and Asia. The Philippines has reaped numerous benefits throughout the years in terms of international trade specifically because of the link that the Suez Canal provides.

The Suez Canal drastically cuts half the total distance ships would traverse if they were to go around the Cape of Good Hope. This also helps to shave a week off of sailing time and cuts down on fuel costs. However, this recent incident has given rise to the need for alternative but efficient shipping routes. Enter: The Northern Sea Route, which Russia has put into the limelight.

This substitute option passes through the Arctic Ocean just off the northern coast of Russia. It’s believed to be able to reduce the distance between Europe and Asia by 60%. The viability of the Northern Sea Route only came into consideration due to the worsening climate crisis.

The route used to be impossible to navigate since it would usually be frozen over, but the ice coverage in the Arctic Ocean has been in steady decline precisely because of the warming temperatures. Still, there are certain challenges to be had if a particular shipping route can’t be used year-round.

While the Northern Sea Route definitely provides a good alternative, some countries — namely, the US — are wary of it becoming a possible path for ships to cross. More than half of the ocean’s coastline is within Russian territory, which could put Russia in an advantageous economic and geopolitical position if it were to be opened.

However, there have been recent discussions between US President Joe Biden and Russian President Vladimir Putin regarding the Northern Sea Route. It’s highly unlikely that a resolution was reached, but the fact that they were engaged in talks around the feasibility of the Northern Sea Route should be enough for now.

“We are prepared to assist all stakeholders and all companies in exploring the Northern Passage,” explained Putin.

Biden also reiterated this sentiment, saying that part of their talks was centered on “how we can ensure the Arctic remains a region of cooperation rather than conflict.”

Nonetheless, the blockage of the Suez Canal is expected to cause global economic damage amounting to anywhere between $2.2 billion and $3.9 billion. Suffice it to say, there is an urgent need to genuinely address the apparent lack of efficient shipping routes. Ships and countries are necessarily being driven to explore new waters, possibly sparking a New Age of Exploration.

References: The Washington Post, Reuters, CNN, Nippon.com