Seven days ago, the Ever Given, one of the largest cargo ships in the world, became wedged sideways in the Suez Canal. Today the ship has finally been freed – amid warnings of long-term effects for world trade – and UK online retailers.
The 400m long container ship was carrying an estimated 18,000 containers on board – some destined for RetailX Top500 retailers including Ikea and Dixons Carphone.
Individually, neither retailer expects major disruption as a result – their stores in the UK remain closed until April 12 at the earliest, and neither expects availability to be affected by the incident.
A spokesperson for Dixons Carphone says: “We have a small number of containers on the vessel blocking the Suez Canal, however we don’t believe this will cause any meaningful disruption to our stock levels or business operations.”
And an Ikea spokesperson says: “We can confirm that there are containers with Ikea products on the blocked vessel and on vessels that are waiting to make passage via the Suez Canal. With this morning’s positive news from the Suez Canal Authority that the vessel is now refloating we estimate that the incident in the Suez Canal will have a minimum impact on the availability of our products. We are closely monitoring the development together with the shipping lines and hope for a continued successful rescue mission.”
Andy Needham, managing director of short dated food pureplay Approved Food, says the Suez incident is just the latest in a long list of factors adding complications to the global supply chain.
Needham says: “Brexit, Covid-19, the ship stuck in the Suez Canal – it’s a perfect storm. We might not feel the full effect for weeks but if the movement of ships is delayed then there will be shortages. We have also seen ships having to wait to dock as ports are busy with the added paperwork burden and some ports are still suffering with a hangover of substandard PPE deliveries from last year.”
Already, he says, the cost of hiring containers for products being shipped from the Far East has more than trebled since January = from around $3,50 to as much as $12,000. As a result, some orders are delayed or missed, with the effect that household goods from kitchen utensils to garden furniture are now in short supply.
Warnings of longer-term delays
About 400 ships were reported to be queuing in the Suez, the world’s busiest shipping lane, by the time Ever Given was refloated – and collectively carrying hundreds of thousands more containers.
ParcelHero’s head of consumer research David Jinks estimates that the delay will cost global trade around £4.35bn. Jinks, a member of the Chartered Institute of Logistics and Transport and the former editor of Lloyds Shipping List, says the delay will affect Amazon and other online businesses.
“The 200,000-tonne Ever Given was carrying 18,300 containers, but that is only the tip of the iceberg,” he says. “A total of 367 vessels were waiting to pass through, and officials have said it will take at least three and a half days to clear the traffic jam. About 12% of global trade passes through the canal each day.
“Many of the container ships delayed, including the Ever Given herself, are carrying ecommerce goods from Amazon, eBay and Alibaba. For example, the shipping and freight forwarding company Seaport Freight Services, based at the Port of Felixstowe, has 20 containers of goods stranded on the ship, including Amazon orders.
“Seabay International Freight Forwarding Ltd., a company that handles Chinese goods sold on platforms such as Amazon, also has 20 to 30 containers on the ships waiting to transit the canal.”
Jinks predicts there will be long-term delays to trade – and that some drop shippers, who source cheaply from the Far East and sell on sites including eBay and Amazon “could be permanently sunk”.
Jinks says: “We’re all used to Chinese ecommerce orders taking a while to arrive, but we can expect everything to be on the slow boat from China for some time. Many shipments planning to use the Suez Canal will have already diverted around the Horn of Africa as well, adding another seven days to their arrival in the UK.
“It’s a bigger problem than just delays for internet shoppers, however; the German insurer Allianz says the canal’s closure could reduce annual trade growth by 0.2 to 0.4 percentage points. It estimates the blockage could cost global trade $6 billion to $10 billion a week.”
Emile Naus, partner at management consultancy BearingPoint, says: “The Ever Given has been refloated, and the Suez Canal has re-opened. But the real implications for retailers will only just start to appear. The vessel was due in Rotterdam at 04:00 on March 31. Freight from the vessel would probably start hitting retailers’ distribution centres towards the end of the week, for sales in April and May. Nearly 400 vessels are stuck in the traffic jam that has resulted, and a significant number of vessels headed for Cape Hope and the long journey around Africa to avoid the issue.
“It will take weeks to recover the implications: vessels that have been delayed will all arrive together in European ports, further adding to the congestion that was already impacting shippers. The impact will be felt throughout a container line’s loop, with some sources suggesting that shipping lines might effectively ‘lose’ a week out of the rotation. With the top ten ports in European handling 1.3m TEUs (twenty foot equivalent containers) per week (2019 data), that would remove a huge amount of capacity from the market.
“Having the schedules severely disrupted will take a significant amount of time to fix. Relocating these vessels is both time consuming and costly, and shipping lines will need to carefully balance their client’s requirements against the economics of running these lines.
“We will also see another hit on the availability of empty containers. Each delayed vessel will reduce the number of empty containers in Asia, where Covid has already resulted in shortages and some incredible price inflation (500%+). The combination of shortage of vessels and containers will likely push the prices up even further. Finally, disruption to oil supply will have a knock-on effect on product costs in the short term.
“In the short term, retailers would be well advised to carefully consider the priority shipments, and also the option of alternative arrangements. Air freight is likely to see a boost, particularly since passenger numbers are still depressed, and the much talked about China-Europe rail connection is likely to also get a boost. But we need to be realistic on the volumes that can be handled on each of these modes of transport. A single large scale container vessel will carry 9,000+ full size (40’) containers, and neither rail or air will be close to meeting that level of demand.
“This type of disruption might be unexpected, but Covid, Fukushima and Icelandic volcano eruptions have all caused massive disruption over the last decade. It is clear that retailers need much better planning capability for these types of disruption. A Digital Twin representation of your supply chain, with the capability to model the implications of delays on product availability, and the ability to prioritise alternative supply options, will be key.”