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29 March 2021

The Suez Canal blockage is a reminder that geography does matter in trade

Disruption from the stranded container ship contains a warning for nations over-reliant on trade with far-off countries.

By Ido Vock

The Suez Canal, the trade artery in Egypt which allows ships travelling between Europe and the Middle East, India and Asia to avoid sailing around the entire African continent, has been blocked for almost a week after a giant container ship, called Ever Given, owned by the Taiwanese company Evergreen Marine, ran aground on the bank of the canal after apparently being blown off course by high winds on 23 March.
 
The ship, which had been blocking the canal through which around 13 per cent of global trade is estimated to travel, had been partially refloated by Monday morning, raising hopes that the waterway may soon be cleared. 

The blockage is thought to be holding up $9.6bn of goods every day. Some shipping which would ordinarily go through Egypt is having to take a 3,500-mile detour via the Cape of Good Hope in South Africa, extending voyages by up to 12 days – not catastrophic, but adding not-inconsiderable additional time and expense to already complex global supply chains. 
 
The container capacity of the largest ships, such as the Ever Given, has almost doubled in the past decade, but much of the infrastructure they rely on, such as canals, has largely stayed the same. The Financial Times have explained the specific hydrodynamic challenges ships such as the Ever Given face.
 
This is not the first time the Suez Canal has been blocked since its completion more than 150 years ago. Following the 1967 Six-Day War between Israel and several Arab countries, Israel occupied Egypt’s Sinai Peninsula, up to the eastern bank of the canal. The waterway was blocked for eight years, trapping 15 ships until the route was reopened in 1975. (Their crews founded a yachting club and watched films on a Bulgarian vessel. The Swedes had a pool.)
 
This latest blockage, even if it is resolved relatively rapidly and without catastrophic consequences for global trade, exposes the weakness in the argument that in today’s world, geography doesn’t matter. Some Brexiteers have argued that the UK could make up for trade lost with the EU, a bloc right next door, by trading more with faraway nations. The UK’s application to join the catchily-titled Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trading bloc including Mexico, Australia and Vietnam, despite clearly not being a Pacific nation itself, epitomises this belief.
 
Yet the infrastructure of the global trading system on which such a worldview depends on is far more fragile than it might appear. Shipping flows are vulnerable to any number of occurrences, from bad weather (such as in January, when several dozen containers fell into the sea after a ship owned by the same company, Evergreen Marine, was hit by strong winds) to war and blockades. Increased reliance on commerce with countries farther away mathematically increases the likelihood of disruption hitting trade routes, as the number of potential points at which trade can be disrupted increases.
 
Global trade has consequently been growing more slowly than GDP for some time. Some of the discrepancy can be explained by low demand and increased protectionism, but at least part of the story is the weak state of the infrastructure underpinning trade, Vasuki Shastry, a researcher at the think-tank Chatham House, told me. “The global shipping industry seems like a cartel. Like all cartels, that is not a very good situation for the global economy … there are literally three or four massive ship container shipping industry companies, controlling most of global trade.” The four largest such companies control nearly 60 per cent of the market between them, according to Alphaliner, a research company. 
 
The Suez Canal is far from the only potential pressure point at which trade could be severely restricted by accident or design, from the Strait of Malacca between Malaysia and Indonesia, to the Panama Canal in Latin America. Control of trade travelling through the South China Sea is one of the key reasons behind China’s disputed claim to much of it. As the Suez blockage shows, anything from all-out war in East Asia to a badly-timed gust of wind in Egypt can hamper global trade flows – with potentially devastating consequences for nations over-reliant on trade with far-off countries.
 
The argument that geography doesn’t matter was always more of a fair-weather one. And the blockage in the Suez Canal is a preview of what could happen if the mood in global politics shifts.

[See also: The world to come – the imminent shocks]

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