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Container market braced for further delays following Suez Canal incident

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Container market braced for further delays following Suez Canal incident

Highlights

Some container liners eyeing Cape of Good Hope route

Container market already seeing port delays, seen worsening

London — The overnight running aground of a mega container ship that has blocked maritime traffic on both sides of the Suez Canal is delaying ship movements and will disturb trade flows in the near term.

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Several container liners are already looking at re-routing cargoes via the Cape of Good Hope in an attempt to keep cargoes moving, although this will cause additional costs in the market.

"Going via the Cape [of Good Hope] will be a key option for some of the container liners, but that has additional costs obviously in terms of delayed transit times and significantly higher bunker consumption due to the additional distance steamed," a freight forwarder said.

"This is coming at a time when container trade is already disrupted and there are significant delays at port, so it really is the icing on the cake for some liners."

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At present, in Europe, there are already significant delays at ports owing to ongoing firm demand and equipment shortages around the world, which have pushed freight rates to all-time highs.

These equipment shortages are stemming from delays inland, resulting in a lack of empty containers readily available for export. This issue has been ongoing for several months, and stems from the coronavirus-related lockdown measures across the world that have left skeleton staffing levels at some warehouses.

Where previously containers have taken around five days from discharge to return to port, in some instances they have taken up to three or four weeks. That leaves fewer containers to be readily filled and exported, hence further delays with cargo volumes, and increasing numbers being delayed onto the next vessel.

This new incident is expected to see delays worsen and transit times increase further, much to the frustration of cargo owners who have already seen rising costs affect their arbitrage opportunities.

Platts Container Rate 1 – North Asia-to-North Continent – was assessed at $9,500/FEU on March 23, up from $1,375/FEU a year earlier as logistical issues continue to bite.

The current backlog in the container market could lengthen should the situation continue.

Photo: Platts cFlow

Maersk currently has four vessels in the canal system -- Maersk Denver, Maersk Esmeraldas, Maersk Saigon and Gunde Maersk -- James Wroe, Head of Liner Operations, Maersk Asia Pacific, said in a LinkedIn post.

He said that apart from Maersk Saigon, which "has the ability to cover a little over two days of delay for on-time arrival," the remaining three would face "immediate additional delays."

"Every hour that passes, the backlog at the canal increases, placing further stresses on supply lines that were already deprived of buffers," he said.

Since the container ship is just around 11 km into the canal in the northbound direction, it will either have to be taken back to Suez or forward into the Great Bitter Lake region, a maritime navigator tracking the development said.

It is hazardous to repair the containership inside the canal lanes but after refloating the ship, it can only be moved at a slow speed of around two knots and therefore resuming normal traffic can take dozens of hours, the navigator said.

The Suez Canal connects the Red Sea with the Mediterranean Sea and is a key waterway in international trade. Large volumes of consumer goods from China and South Asia to Europe, crude and refined products from Persian Gulf and India to Europe, naphtha from Europe to Asia and crude from the Persian Gulf to US Gulf cross the canal.