Suez Canal blockage exposes vulnerabilities of global trade flows

The Ever Given container ship is pictured in Suez Canal in this Maxar Technologies satellite image taken on March 26, 2021. (REUTERS)
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The Ever Given container ship is pictured in Suez Canal in this Maxar Technologies satellite image taken on March 26, 2021. (REUTERS)
Tugboats and dredgers are working to free the Ever Given container ship blocking Egypt's Suez Canal. (AFP)
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Tugboats and dredgers are working to free the Ever Given container ship blocking Egypt's Suez Canal. (AFP)
Two tugboats are seen near the Ever Given, which has become wedged across the Suez Canal and blocking traffic in the vital waterway from another vessel. (Suez Canal Authority via AP)
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Two tugboats are seen near the Ever Given, which has become wedged across the Suez Canal and blocking traffic in the vital waterway from another vessel. (Suez Canal Authority via AP)
A backhoe digs out the keel of the Ever Given argo ship that is wedged across the Suez Canal and blocking traffic in the vital waterway. (Suez Canal Authority via AP)
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A backhoe digs out the keel of the Ever Given argo ship that is wedged across the Suez Canal and blocking traffic in the vital waterway. (Suez Canal Authority via AP)
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Updated 29 March 2021

Suez Canal blockage exposes vulnerabilities of global trade flows

Suez Canal blockage exposes vulnerabilities of global trade flows
  • Delays in dislodging the giant Ever Given cargo ship have compounded pandemic-driven problems for international supply chains
  • The Suez Canal blockage raises questions about cargo vessel size, waterway capacity and the benefits of localized production 

BERNE, Switzerland: International waterways matter, few more than the Suez Canal. More than 1 billion tons of cargo passed through the Egyptian waterway in 2019, according to the canal authority, which equates to roughly four times the tonnage passing through the Panama Canal.

Europe, in particular, depends on the canal for its supply of energy, commodities, consumer goods and components from Asia and the Middle East. So, when the giant cargo ship Ever Given ran aground on Tuesday, clogging this vital artery of world trade, anxiety quickly set in. 

When it became evident that the vessel could be wedged in place until Wednesday of next week, the ripple effect was felt far and wide — well beyond the offices of the ship’s owners and operators and their insurance companies.

The Ever Given is owned by Japan’s Shoei Kisen Kaisha and operated by Taiwanese firm Evergreen. Goods valuing around $10 billion pass through the canal every day, but the Ever Given alone is estimated to carry a load worth $1 billion, according to IHS Markit. 

The canal has been in continuous operation since it was first inaugurated in 1869, with only the briefest interruptions between 1957 and 1958 when Egypt’s then-President Gamal Abdel Nasser nationalized the waterway and later between 1967 and 1973 due to the two Arab-Israeli wars. 

For the most part, the canal has operated without a hitch for the past 50 years or more. And if anything, its importance has grown in tandem with globalization, cementing the links between the Orient and the Occident. 

Therefore it comes as no surprise that this impasse poses far greater issues than simply dislodging a stricken ship. The temporary closure of the Suez Canal highlights several problems pertaining to ship size, as well as the vulnerability of international waterways, global supply chains and imports. 

Between 1980 and 2019, global trade volume grew 10-fold to $19.5 trillion. This growth came hand-in-hand with the ever-growing size of maritime vessels to meet mounting demand. Indeed, the dimensions of the Ever Given are truly enormous, at 1,444 feet in length (roughly the height of the Empire State Building), 194 feet in width and weighing in at more than 400 million pounds.

While waterways like Suez and Panama have undergone several major expansions and are dredged on a regular basis — the last Suez expansion was completed in 2015 — accommodating these giant vessels bears inherent dangers. Tuesday’s incident is a case in point. 

The question “How big is too big?” has vexed authorities, shipyards, vessel owners and operators alike. The question is also relevant for the insurance industry, which will have to pick up the bill for the Ever Given and any incidents in the future.

Another issue is how reliable “just-in-time” supply chains actually are. This question goes well beyond marine security. In just the past four years, trade wars between the US and China have left severe cracks in global supply chains. 

Reshoring, when companies return goods to their country of origin, has become increasingly common, as manufacturers look to protect their investments in the face of geopolitical tensions and unreliable supply chains.

If anything, the coronavirus (COVID-19) pandemic has exacerbated that trend. Last year, countries were scrambling over a limited supply of personal protection equipment (PPE). Now they are locked in a battle over access to vaccines.

These heightened political tensions demonstrate a need for more critical goods to be produced domestically, or at least on the same continent. By way of example, Pat Gelsinger, the CEO of Intel, recently announced the tech giant will soon establish more factories in the US and Europe to reduce its reliance on external microchip supply chains from Asia.

INNUMBERS

12% Proportion of global trade which passes through Suez.

$9.6bn Value of goods that pass through canal every day.

19,000 Ships that passed through the canal in 2020.

Just-in-time supply chains are like high-precision acrobatics, where the entire performance fails if even one component arrives with the slightest delay. As such, they are incredibly vulnerable, like the Ever Given incident shows. Delayed components can put a company’s entire manufacturing process in danger.

Even with experts on hand, dislodging the Ever Given and clearing the waterway could take up to a week. This is bad news for companies waiting for their cargo. At roughly $10 billion a day in foregone or delayed business, time is money. 

Some ships have been rerouted around the Cape of Good Hope, adding another 6,000 miles around Africa to their journey and up to $400,000 in fuel costs depending on the size of the ship. No wonder shipowners and operators have been biding their time at either end of the Suez to see how things pan out.

And the problems do not stop there. The pandemic has already upended the logistics of shipping containers, leading to a scarcity of metal boxes. The cost of a 40-foot container has quadrupled within the past 12 months.

Inflationary pressures do not just pertain to the cost of shipping. The closure of the Suez Canal, if it persists too long, may have ramifications for oil markets as well. 

Fortunately, the Suez Canal has lost its importance as a shipping lane for oil from the Gulf. For one, Asia has become the most important customer for Gulf oil producers. While some 3.8 million barrels per day (bpd) passed through Suez in the early 2000s, that volume has since fallen to 2.1 million bpd. 

Oil markets nevertheless rose on Tuesday and have oscillated since, ending at $64.66/barrel by early evening CET Friday. Although an extended blockage will likely affect crude supplies to Europe, demand is currently depressed owing to COVID-19 restrictions and lockdowns on the continent. 

There is also the fallback option of the Sumed pipeline from the Red Sea to the Mediterranean, which has a capacity of 2.5 million bpd and is largely unused at present due to OPEC+ production cuts.

All in all, the blockage of the Suez Canal has laid bare the vulnerabilities of international shipping lanes and the fragility of supply chains. While the blockage will likely be resolved soon, it raises pertinent questions about the size of vessels and how these giant ships can be accommodated by what are essentially 19th and 20th century, man-made waterways. 

The incident will have a short-term inflationary impact, particularly for Europe and the already overheated sea container market. The longer it takes to hoist the Ever Given from the sandbanks in the Suez, the bigger the impact it will have on supply chains and sea container markets. 

And as freight has become a truly global business, the inflationary impact of container delays will be felt worldwide. 

Although this is a major incident for maritime shipping, matters could have been far worse. As the Ever Given is Japanese-owned and Taiwanese-operated, events are unfolding in the Suez without the region’s usual geopolitical undercurrents that linger under the surface.

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Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources. Twitter: @MeyerResources

 


OPEC should leave oil market in hands of the Saudis – Mizuho

OPEC should leave oil market in hands of the Saudis – Mizuho
Updated 23 July 2021

OPEC should leave oil market in hands of the Saudis – Mizuho

OPEC should leave oil market in hands of the Saudis – Mizuho
  • Saudi Arabia has managed production effectively during COVID era
  • Risks remain as COVID resurgence could hurt demand

RIYADH: OPEC and the entire energy industry should thank Saudi Arabia for helping oil prices recover from negative territory last year, and the market would be best left to the Kingdom to manage, according to a senior investment banking energy commentator.

“They’ve done a magnificent job of managing their production program in the COVID era,” Robert Yawger, executive director of Energy Futures at Mizuho Securities said in an interview on Bloomberg Television on Thursday.

Crude oil futures fell below zero for the first time in history on April 20 last year as demand evaporated amid widespread lockdowns in response to the coronavirus pandemic.

That was an “unprecedented event” and “left a terrible scar on the industry,” said Yawger. “It rallied back under the management of the Saudis. The rest of OPEC has a lot to thank them for. Anyone that has anything to do with energy has a lot to thank them for, for that matter.”

WTI crude, the US benchmark, reached a six-year high of $76.98 on July 5 as OPEC+ failed to find agreement on output quotas, but has edged lower since then as the UAE and Saudi Arabia hammered out a compromise. The group will raise output by 400,000 barrels a month from August for 14 months.

While discipline on production has helped bring prices back, the market is at risk if renewed lockdowns hurt demand, said Yawger.

“I understand that everyone wants to get as many barrels on the market as possible, but you just can’t do that,” he said. “You cannot flood the market. It’s a very fragile state right now.”

“In my opinion, it’s best to let the Saudis manage it; they’ve done an incredible job. As long as they don’t flood the market themselves,” he said.

“Everybody remembers negative prices. That was the result of the price war last year. They all came to the assumption that it’s better to keep the barrels off the market and let the Saudis take charge and manage the situation than let prices slide in that direction again. Nobody can sustain that kind of slide for very long.”

“I don’t know if we’re going to see that $76.98 number again. That may be a challenge.”

US COVID-19 cases have climbed in recent weeks, reaching almost 64,000 yesterday compared with below 10,000 a day at the beginning of the month. However, that’s down from the peak in January of more than 250,000 new cases per day.

“If we have a COVID flare up that’s a third of what it was last fall, we have a serious problem on our hands and demand would not be that supersized as a result,” said Yawger. “If everybody was vaccinated we would not even be having this conversation. But because we’re headed into the winter with a big part of the population that’s not vaccinated, it has the potential to be a big problem for crude oil demand.”


New Russian war plane has Mideast orders in sights

New Russian war plane has Mideast orders in sights
Updated 23 July 2021

New Russian war plane has Mideast orders in sights

New Russian war plane has Mideast orders in sights
  • Plane has combat radius of 1,500 km and shortened takeoff and landing
  • Russia expects 300 orders for the plane over the next 15 years

DUBAI: Mideast governments could figure among customers for Russia’s new Sukhoi stealth fighter jet, a top Rostec executive told Arab News.
Known popularly as “The Checkmate,” the aircraft was inspected by President Vladimir Putin ahead of Moscow’s biennial airshow on Tuesday.
Designed to compete with the US F-15 fighter jet, few details had previously been made public about the plane made by Rostec, Russia’s defense industry manufacturing conglomerate and United Aircraft Corporation (UAC).
Victor Kladov, Rostec director for international cooperation and regional policy, told Arab News the aircraft had high export potential.
“This included singling out countries of the Middle East among potential customers,” he said.
Earlier, UAC General Director Yury Slyusar told Russian TV the plane had a combat radius of 1,500 kilometers and shortened takeoff and landing.
He expects as many as 300 orders for the plane over the next 15 years, mainly from the Middle East, Asia and Latin America.
“Market appetite for advanced aircraft such as “the Checkmate” is strong in the Middle East, particularly if workshare and investment opportunities can help to satisfy local offset and industrialization policies,” said Charles Forrester, a regional lead analyst at Janes, a defense intelligence provider. “The desire to have sovereign control over advanced capabilities is a key part of this, particularly given the challenge of supply chain security in the face of export controls from foreign partners.”
The plane is expected to cost between $25 million and $30 million according to Rostec CEO Sergey Chemezov.
Russia has invested heavily in its defense sector in recent years and has targeted exports to the Gulf states where it has been highly visible in regional arms fairs.
However strong US ties to the region have sometimes hampered its marketing push in the Arab world — with the Countering America’s Adversaries Through Sanctions Act (CAATSA) deterring potential clients.
“From an operational perspective, a number of militaries in the region are undertaking the process of refreshing their aircraft fleets that were acquired in the 1990s and 2000s, in order to deploy new capabilities, improve interoperability, and reduce maintenance costs. For some countries, such as Qatar and Egypt, this has involved significant increases in fleet sizes and capabilities. Changing threat dynamics, such as new anti-aircraft missile technology, have also meant that new capabilities are required to maintain an edge over their potential adversaries,” added Forrester.


Bitcoin set for weekly gain after Musk helps recovery above $30,000

Bitcoin set for weekly gain after Musk helps recovery above $30,000
Updated 23 July 2021

Bitcoin set for weekly gain after Musk helps recovery above $30,000

Bitcoin set for weekly gain after Musk helps recovery above $30,000
  • Bitcoin fell below $30,000 on July 20
  • Musk said he and his companies own crypto assets

RIYADH: Cryptocurrencies rose on Friday, with bitcoin headed for a weekly gain following a volatile period that saw it dip below $30,000 for the first time in a month.

Bitcoin, the most traded cryptocurrency, was 1.1 percent higher at $32,419.46 at 12:36 a.m. Riyadh time, according to Coindesk desk data. Ether, the second most traded crypto asset, rose 3.7 percent to $2,056.70.

Bitcoin fell as low as $29,504.96 on July 20 before comments from Elon Musk at the B Word conference the follow day helped stir bullish sentiment. Both Tesla and SpaceX hold bitcoin on their balance sheet, and he personally owns bitcoin, ether and dogecoin, he said.

His comments helped boost prices across the crypto complex, with ether breaking above $2,000 for the first time since July 14.

Crypto traders have experienced a “roller coaster ride,” Lukas Conrad, chief product officer at Bitpanda told Coindesk. “Even though pressure from sellers might be diminishing, buyers won’t turn things around until resistance is broken.”

Core Scientific Holding Co. said on Wednesday it would go public through a merger with a blank-check company backed by BlackRock Inc, in a deal that values the cryptocurrency miner at $4.3 billion.

The deal with Power & Digital Infrastructure Acquisition Corp will fetch $300 million in cash proceeds, but the companies did not disclose a private investment in public equity (PIPE) round that typically accompanies blank-check mergers.

Core Scientific said it had mined 928 bitcoins in the second quarter and forecast revenues of $493 million and $1.1 billion for fiscal 2021 and 2022, respectively.

The company said it was 100 percent net carbon neutral and aims to remain so as it grows. Bitcoin is virtual but mining the asset consumes a lot of energy as it is created using high-powered computers around the globe.

A survey conducted by the investment bank Goldman Sachs found that 45 percent of family offices are interested in investing in cryptocurrencies, Bloomberg reported on Wednesday.

Another 15 percent, over 150, said they have already invested in cryptocurrency. And they see the crypto industry as a hedge against higher inflation, prolonged low rates and other macroeconomic developments following a year of unprecedented global monetary and fiscal stimulus.

FTX Trading Ltd said on Tuesday its valuation had risen to $18 billion after a $900 million funding round that included SoftBank Group Corp and was one of the biggest fundraises for a crypto company.

The round saw participation from more than 60 investors, including venture capital firm Sequoia Capital, private equity giant Thoma Bravo, Daniel Loeb's Third Point, the Paul Tudor Jones family and British hedge fund manager Alan Howard.

JPMorgan Chase & Co will allow all of its wealth management clients access to cryptocurrency funds, Business Insider reported on Thursday, citing sources.

The bank told its financial advisers in a memo earlier this week to take buy and sell orders from its wealth management clients for five cryptocurrency products effective July 19, the report said.

Four of such products are from Grayscale Investments and one from Osprey Funds, according to the report. JPMorgan declined to comment on the report.


Egypt raises domestic fuel prices 7% in quarterly pricing review

Egypt raises domestic fuel prices 7% in quarterly pricing review
Updated 23 July 2021

Egypt raises domestic fuel prices 7% in quarterly pricing review

Egypt raises domestic fuel prices 7% in quarterly pricing review
  • Prices of all three grades raised by 0.50 Egyptian pounds each
  • Equates to about 7 percent price increase

CAIRO: Egypt has raised domestic fuel prices in a quarterly review that links energy prices to international markets, the petroleum ministry said on Friday.

The prices of 80-octane, 92-octane and 95-octane petrol were raised 0.50 Egyptian pounds each, to 6.75 Egyptian pounds ($0.43) per liter, 8 EGP/liter and 9 EGP/liter respectively, effective from 9:00 a.m. local time (7:00 a.m. GMT) on Friday, the ministry statement said.

The petroleum products price-setting committee decided to increase the prices following extreme fluctuations in global oil prices, the COVID-19 pandemic and global oil output cuts, it added.

The committee also takes into account the exchange rate.

In April, the committee raised domestic fuel prices for the first time since it was formed in October 2019 following the completion of subsidy reforms.

Prices were raised in July 2019 when Egypt, a net oil importer, finished phasing out subsides on fuel products as part of a reform program backed by the International Monetary Fund. Prices had been stable over the last year after being lowered in April 2020 and October 2019.


Electric vehicles double market share in Europe in the second quarter

Electric vehicles double market share in Europe in the second quarter
Updated 23 July 2021

Electric vehicles double market share in Europe in the second quarter

Electric vehicles double market share in Europe in the second quarter
  • All-electric vehicles accounted for 7.5 percent of new car sales in Europe
  • Sales of battery electric vehicles more than tripled across Europe to 210,298 cars

PARIS: Electric vehicles more than doubled their share of new car sales in Europe in the second quarter, with hybrids also making gains, the European Automobile Manufacturers’ Association (ACEA) said Friday.
All-electric vehicles accounted for 7.5 percent of new car sales in Europe in the three months from April through June, against 3.5 percent during that period last year.
In absolute terms, sales of battery electric vehicles more than tripled across Europe to reach 210,298 cars.
The ACEA said there were substantial gains in the region’s top four markets, led by sales more than quadrupling in Spain and Germany.
“Plug-in hybrid electric vehicles (PHEVs) had an even more impressive second quarter of 2021, with registrations jumping by 255.8 percent to 235,730 units,” said the ACEA.
Sales of hybrids also more than tripled to 541,162 vehicles, remaining the largest category of alternatively-powered cars.
Meanwhile, registrations of new petrol and diesel vehicles increased given the low number of vehicles sold in the second quarter last year, when many European countries had severe restrictions on businesses due to the pandemic.
But in terms of market share, both petrol and diesel saw huge drops.
Diesel saw its market share plunge to 20.4 percent from 29.4 percent.
Petrol had a bigger contraction, to 41.8 percent from 51.9 percent.
Automakers are stepping up their plans to shift to all-electric production.
Yesterday, Mercedes-Benz maker Daimler said it plans to invest more than 40 billion euros ($47 billion) by 2030 to be ready to take on Tesla in an all-electric car market, but warned the shift in technology would lead to job cuts.

Outlining its strategy for an electric future, the inventor of the modern motor car said on Thursday it would, with partners, build eight battery plants as it ramps up electric vehicle (EV) production.

From 2025, all new vehicle platforms will only make EVs, the German luxury automaker added.

“We really want to go for it ... and be dominantly, if not all electric, by the end of the decade,” Chief Executive Ola Källenius told Reuters, adding that spending on traditional combustion-engine technology would be “close to zero” by 2025.

However, Daimler — to be renamed Mercedes-Benz as part of plans to spin off its trucks division later this year — stopped short of giving a hard deadline for ending sales of fossil-fuel cars.

Some carmakers like Geely-owned Volvo Cars have committed to going all electric by 2030, while General Motors Co. (GM.N) says it aspires to be fully electric by 2035, as they all try to close the gap to industry leader Tesla.