The Implications of the Suez Canal Crisis

By Manas Vani

Staff Environmental Economist

The mammoth container that was stuck in Egypt’s Suez Canal for five days and cost the world $400 million an hour. 360 ships were waiting for Ever Given, with shipments of grains, coffee, and toilet paper. The reason why the boat was stuck at the bank of the canal is disputed. The owners of the ship (as tall as a skyscraper) blame it on the high winds from a sandstorm that pushed the ship at the banks of the channel. Likewise, In 2006, a 90,000 ton Hong Kong flagged ship–Okal King–also ended up on the banks under similar conditions due to high winds and sandstorms. However, the chairman of Egypt’s Suez Canal authority believes that “there may have been technical or human reasons”. 

Such a big blockage of the Suez canal is extremely rare, and unlikely, but it highlights another point about the supply chain of most of the basic things we need in life. If the Suez Canal was blocked for a longer time, economies that primarily are dependent on imports from that canal would experience a supply side shock. Economist William Lee, from the Milken Institute, claims that it is a wake-up call for companies that have set their supply chains with little room for error. He further mentions that, “this is a warning about how vulnerable our supply chains are and how the just-in-time inventory techniques that have been so popular have to be rethought.” Such an error could lead to unprecedented shortages for firms and countries. It also reveals how unprepared the global economy is to extreme events.  

While it is just speculating by some scientists and economists that perhaps climate change could be the reason behind the strong winds–which are uncommon in that area–as the primary factor behind Suez Canal shutdown. However, it can serve as a warning that climate change can contribute to an increase in extreme weather that can impact the global trade points. A 2017 report by Chatham House, an independent policy institute in London, reported that the food required to feed 2.8 billion people travel through only fourteen global trade points. Even closure of one global trade point, would mean a sharp scarcity of goods in that region. An article on Fortune.com states that choking of major global trade points is just a taste of the future. The panama canal is running out of water because of less rain and evaporation, because of higher temperature. Moreover, 25% of the world’s soybean exported is transported through the Strait of Malacca to China for animal feed. 

Severe weather can not only disrupt agriculture, it can also disturb the supply side chain for transportation of food. The United States imports roughly $140 billion worth of food from around the globe. Unusual weather patterns like the snow storm in Texas are a perfect example of extreme weather that can shutdown pretty much every mode of transportation needed to trade. As Dr. Hoffman explained in his op-ed in Fortune, President Biden’s infrastructure plan could help avert some critical food crises which can take place because of cripplying infrastructure and climate change. 

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