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Suez blockage reveals globalization bottlenecks

Boehme Henrik Kommentarbild App
Henrik Böhme
March 29, 2021

The Ever Given cargo ship has been successfully refloated in the Suez Canal. But the dayslong blockage of the crucial waterway will have a long-lasting impact on global trade, says DW's Henrik Böhme.

This picture from a nearby tugboat in the Suez Canal shows a view of the Panama-flagged MV 'Ever Given' container ship as it begins to move
Good news for global trade: The Ever Given has been refloated in the Suez CanalImage: AFP/Getty Images

After efforts stretching over many days, the Ever Given container ship in the Suez Canal has finally been refloated.

That doesn't mean, though, that traffic in the waterway is back to normal. But it's certainly good news that the gigantic vessel could be dislodged without completely removing the cargo first. After all, it was proving to be a very costly affair. Insurance company Allianz estimated that each day of the blockade was costing between $6-10 billion (€5-8.5 billion).

That's hardly surprising, given that 13% of goods making up the global trade volume pass through the 193-kilometer (120-mile) Suez Canal. It's the shortest route between the economies of Asia and Europe — and it can be a real chokepoint as the past few days have shown all too clearly. Similar bottlenecks are found in the Strait of Hormuz in the Persian Gulf and Strait of Malacca in Southeast Asia. It  would only take, say, a sandstorm, or maybe an inattentive captain to clog a key artery of world trade.

The just-in-time issue

Right now, around 400 vessels brimming over with cargo worth some $10 billion are having to wait for passage on either side of the blocked Suez Canal. Shipowners have had to weigh their options — wait for the canal to be unblocked or let their vessels take the route around the southern tip of Africa, a trip that would take them so much longer.

DW business editor Henrik Böhme
DW business editor Henrik Böhme

Their ports of destination, meanwhile, now have a different problem to consider. How to handle the cargo if the delayed ships all arrive at the same time?

"Just-in-time" has become a real buzzword for the logistics sector. Auto plants, for instance, only have components delivered to their facilities when they need them, saving on storage costs. And the just-in-time mentality is everywhere in global trade.

The coronavirus crisis has shown us, though, that the system has its severe drawbacks and can instantly disrupt production.

Imbalances in the exchange of goods

Right at the start of the pandemic, when China shuttered its plants and brought public life to a standstill, it soon became obvious that containers would stop arriving in other parts of the world. That meant that important parts for various production processes were missing. At a later stage, Europe also went into lockdown, and procurement agencies and companies drastically reduced their demand for electronic parts in the car industry and beyond.

When the Asian semiconductor firms started working again while simultaneously adapting to higher demand in other, non-automotive sectors, there weren't enough microchips to go around for large companies such as Volkswagen. As a result, the German automaker couldn't assemble some 100,000 vehicles last year due to a chip shortage. Add to that the fire that broke out recently in a major Japanese chip-producing company, and it becomes evident that the problem won't go away anytime soon.

A container port in Qingdao, China
Right now, there's a lack of containers available for shipping goods between continentsImage: picture-alliance/ZUMA Wire/SIPA Asia/Y. Fangping

Supply bottlenecks can be seen in other sectors, too. Take bicycles, which are hard to get in Germany right now. That's because there are simply not enough containers to ship them, and the volume of airborne cargo — which would normally move plenty of products — hasn't nearly reached pre-coronavirus levels yet.

All in all, supply problems could shave 1.4% off global growth this year, according to Allianz estimates. We're talking about an expected loss of $230 billion.

Supply chain monopoly?

The coronavirus crisis certainly won't mean the end of globalization. Opponents of world trade and the global division of labor may be hoping for it, but their hopes will hardly materialize. Which, of course, is not to say that globalization couldn't be improved — in terms of unified labor, social standards and beyond.

However, many companies are likely rethinking their just-in-time philosophy and double-checking whether it makes sense to store crucial components in their own warehouses again, rather than risking production stoppages. After all, one thing's for sure: The Suez Canal blockage will not have been the last spoke stuck in the wheel of global trade.

This article has been adapted from German.

Boehme Henrik Kommentarbild App
Henrik Böhme Business editor focusing on international trade, cars, and finance@Henrik58