Suez Canal traffic halt could raise prices of goods, jolt US economy

The grounding of a massive container ship in the Suez Canal has clogged one of the world’s most important trade routes and risks sending a shockwave of higher prices around the world that could jolt the U.S. economy.

The Suez Canal is the world’s second-most important waterway, constituting about 10% of global trade. About 19,000 vessels, or 51.5 vessels per day, passed through the Suez Canal last year, according to Suez Canal Authority data. The route shortens a trip from the Arabian Sea to Europe by about 5,500 miles, saving between eight and 10 days of travel time as vessels can avoid sailing around Africa's Cape of Good Hope.

The Suez Canal blockage will "further rattle global supply chains" that have already been disrupted by the COVID-19 pandemic, wrote a Hong Kong-based J.P. Morgan research team led by Karen Li.

Egyptian officials say the 200,000-ton ship called Ever Given, which was headed from China to Rotterdam, Netherlands, may be freed over the weekend, but Bloomberg News reported the container ship will remain idled until Wednesday at the earliest. Already nearly 240 vessels have been delayed, according to Bloomberg data.  

The longer blockage remains unresolved, the bigger the impact on the global economy, which is still clawing its way back to pre-pandemic levels.

SUEZ CANAL BLOCKAGE: COFFEE, OTHER GOODS AT RISK OF PRICE HIKES

Energy prices have shot up as a result of the blockage of the Suez. About 1.74 million barrels per day of crude oil, or 4.4% transported by seaborne methods in 2020, is transported through the Suez Canal, according to tanker tracking firm Kpler.

The price of Brent crude oil, the international standard, has risen 6.22% to $64.57 per barrel since the closing price on Tuesday, the day before the Ever Given ran aground. West Texas Intermediate crude oil, the U.S. benchmark, has increased 5.5% to $60.97.

The threat of an even bigger surge in oil prices has the Biden administration worried about "potential impacts on the energy market," said White House Press Secretary Jen Psaki. The administration is currently consulting with Egypt, which controls the Suez, on how it can best assist with the matter.

Ever Given’s grounding is "going to create a ripple effect for supply chains within Europe, and it could quite possibly have an impact here in the U.S. as well," if ships carrying inputs for manufacturing are delayed, said Cathy Morrow Roberson, founder of research firm Logistics Trends & Insights LLC.

Delayed shipments of raw materials used in the manufacturing process will cause facilities to temporarily shut down, and could result in them raising prices.

WHERE IS THE SUEZ CANAL AND HOW DID A SHIP GET STUCK IN IT?

Supply chains have already been upset due to the COVID-19 pandemic with shipping capacity "struggling to keep up with demand for traded goods," wrote Gabriella Dickens, global economist at London-based research firm Capital Economics.

Freight rates have been on a steady climb since the discovery of vaccines was announced in November and port congestion on the U.S.’s West Coast and elsewhere has lengthened delivery times.

A further increase in shipping costs due to the Suez Canal’s blockage "will do little to dent demand," Dickens added.

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Consumer demand will only increase from current levels as more people are inoculated, causing lockdown restrictions to be lifted.

"We're looking at empty shelves of certain products," Roberson said.