Supply Chain Chokepoints: Why Are They A Threat To Trade?

The Suez Canal, a crucial shipping chokepoint separating Africa from Asia, handles about 12 percent of global trade. Products shipped through this chokepoint include containerized consumer products, petrochemicals, petroleum products, crude oil, and liquefied natural gas. The Suez Canal and other global supply chain chokepoints are a threat to our current way of living.

This article is written by Rudi Stalmans and featured in the 2021 spring edition of Tank News International. The title of the article in the Magazine is “What if the Suez Canal gets blocked?”.

While sailing to Europe from Asia, the container vessel Ever Given ran aground in the Suez Canal on March 23, 2021, and halted all traffic through the canal in both directions for six days. Although the Ever Given was able to sail again after less than a week, the impact on the global supply chain sent shockwaves through the market.

Relying too much on supply chain chokepoints

Global trade is reliant on several important interoceanic passages between markets. The Panama Canal, the Suez Canal, the Strait of Malacca, and the Strait of Hormuz are the world’s four most crucial interoceanic passages. Malacca is the top maritime passage in the global economy, followed by Suez and Panama.

These passages are chokepoints since they often have capacity constraints, such as the number of ship transits they can handle and have the potential to face disruptions. Many chokepoints are next to politically volatile countries, increasing the risk of access and use obstructions. The Strait of Hormuz is in such an unstable region and very connected to strategic oil and energy markets.

While opportunities for growth are limited, it is still possible to manage their use more efficiently. There are also alternative routes, but they normally add extra sailing time and are only economical when bunker prices are low. But even then, when bunker prices are low and alternative routes become attractive, canal authorities can apply passage fee discount schemes to prevent rerouting. 

Impacting the rules on ship sizes

10,000 TEU was once the limit, but the incredible port upgrades and improved hinterland connectivity have continued the support for larger vessels. Larger container ships reduce liner service schedules on main trade lanes, increase call sizes, and extend reliance on the hub and spoke model.

Ultra Large Container Ships (ULCS) such as the Ever Given, which has a carrying capacity of 20,000 TEU, a length overall (LOA) of 399.94 meters, and a width of 59 meters, displace much more water than smaller vessels. That can result in tricky navigation, especially in narrow passages.

Such large ships with the size of two football fields could get into trouble when conditions are not good. The Ever Given faced strong winds and poor visibility at the time of the incident. But even without those circumstances, a vessel could come into a similar situation because of mechanical failure, for example.

Chemical tankers have also increased in size in the last decade but are still much smaller than a ULCS.  For reference, the largest chemical tankers are about half the size of the Ever Given.

Probably the Suez Canal incident will impact the rules on the sizes of ships and navigation through chokepoints. 

Continue to read part 2 of this article – “Maritime Chokepoints: How Is Your Supply Chain Resilience?“.

Photo Credit: Canva