Shipping companies have been forced into scrapping perfectly good ships because they are simply too expensive to keep afloat. Dauntless sitting off a coast somewhere. Experts have estimated that what might look like a minor inconvenience will likely end up costing over 400 million dollars an hour for every hour that this global thoroughfare was blocked off. And while, of course, the ever given is now free, this issue is far from resolved.
Key Role of Suez Canal in the World’s Trade Network
The Suez Canal links the Mediterranean with the Red Sea, which in turn leads out to the Indian Ocean and the economies of Asia. This makes the 200-kilometer long man-made waterway the most direct shipping link between Europe and Asia, which outside of North America are the most active regions for global trade in the world.12 percent of all global trade, not just shipping trade, but all global trade is dependent on this canal, which causes a problem that most stakeholders have tried to ignore.
The world economy is heavily dependent on an extremely exposed piece of infrastructure, and I don’t just mean exposed to drunken sailors either, but rather exposed to other potentially more severe circumstances as well. All of you might know that economies depend on stability and confidence above all else. If participants in an economy are not guaranteed some level of stability in their day-to-day lives, and if they don’t have confidence in the systems that make up that economy, well, then you don’t have an economy at all.
Nations agreeing to trade with one another involves a trade-off of sorts. By agreeing to international trade, nations lose a bit of self-sufficiency in exchange for more prosperity. Now, international supply chains and global corporations have made the world a far wealthier place than it ever could have been if nations just kept to themselves. However, if the nations involved in this trade don’t have confidence in its stable operations, they are going to revert back to self-sufficiency very quickly.
For example, there are major economies like Japan, Russia, the UAE, and even the UK that are net importers of food. This means that they are ultimately reliant on global trade to feed their populations. Instead of focusing on farming, they will instead produce high-value manufactured goods or raw materials and export them in exchange for food from nations where farming is more efficient. But if those same nations could not be 100 percent guaranteed of the ongoing stability of this food supply, they are likely going to restructure into making ensure their food security first and worry about making that new PlayStation’s second. This leaves everybody worse off overall, but this reduced living standard is a small price to pay to make sure that people get fed.
Now, at least 12 percent of this perceived confidence will come from those waterways. But perhaps more importantly, the region that it’s in is not exactly confidence-inspiring. In the 152 years since the canal was first opened, it has been the center of three wars and has been seriously claimed by at least four separate governments. Even beyond that, it isn’t even the first time that this canal has been blocked, and modern container ships have grown larger and larger. There have been three blockages similar to what we have seen here with the ever given in the past 20 years.
Despite the High Cost, American Government Encourages US-made Goods.
Until now, it might just sound like an uncomfortable reality that trading nations have to deal with, given that there really isn’t a much better alternative. On the other hand, the difficulties caused by the fallout of the coronavirus compounded on top of this new very public display of how vulnerable shipping routes can be, it probably comes as no surprise that there are increased calls for politicians to support local industries over international trade. And this might sound like the classic battle of globalization versus national self-sufficiency.
The difference is that normally people have opinions but still overwhelmingly end up voting with their wallets for the cheapest goods, which contributes to global supply chains. If it really does become a debate over dollars and cents, which it will, then it’s important to understand who it is that is going to pay for this mess. People following this event will likely have heard that this mishap ended up costing the global economy somewhere in the region of 10 billion dollars per day.
But where did this figure actually come from and who is going to pay it? Simply, in 2019, the total value of goods traded throughout the world was nineteen and a half trillion US dollars. Of course, giving covid restrictions, this figure will be a lot lower in 2020 and 2021. Let’s just take this generous figure of $19.5 trillion. If we divide that to give us a daily figure, this works out to be just over $50 billion dollars per day. Now as we have seen, the Suez Canal facilitates 12 percent of this global trade, which would give us a figure of $6 billion dollars, falling almost 50% short of these estimates.
Most of the goods sitting on these ships will be just fine when they eventually get to their destination or just be a bit delayed. Now, that’s not to say that this figure is totally bogus, more that it’s widely misinterpreted. This will be the total of trade not realized because of this incident. Even now that we have a given is free, it does not mean that the traffic jam is cleared. The Suez Canal can only handle so much traffic and it will be dealing with this backlog of ships for at least the next month. Once this is considered and the actual cost of the operation to free the vessels is taken into account. Then in a stretch, economists can claim that this ended up denying this massive figure.
Traditional Means of Shipping Transportation
There are basically four main ways that these containers can be moved around right now by ship, train, truck, and plane. All of these have distinct advantages and disadvantages. The big reason shipping is so popular is because it is cheap. The fact is sending a container from England to Australia was cheaper than sending it a tiny fraction of the distance to Switzerland because it could be sent the entire way on a ship, which is way cheaper per mile than a truck.
However, in the first disadvantage, ships can’t service inland regions, meaning that landlocked nations and non-coastal cities need to look for alternatives. Trains are the next best bet. They have locomotion; thus, they can transport goods very efficiently as well. In contrast, in the same way that ships can access areas without water, trains can access areas without tracks and tracks are far less common than roads that are utilized by the next best option – trucks. Now, trucks actually kind of suck as an efficient way to transport stuff. If you compare the average of one container per truck driver, it has 20000 containers for its crew of 25. It’s obvious that simply based on personnel costs, the economics favor the large vehicles. And of course, there is a more expensive option and that is flying. Nevertheless, most planes don’t carry these kinds of containers at all. And the only advantage they have over any other alternative is that they are fast, which makes them great for small, high-value items, but pretty much useless for anything else.
Age of Airship
The common weakness among all of these transport mediums has been their dependence on infrastructure. Their job is to get a good from point A to point B, but more often than not, these two points are not an airport or a shipping terminal or even a train station, which means the last few miles are almost always done using a truck. This dependence on infrastructure means that these alternatives are also susceptible to rail track maintenance or airport closures or, you know, beached face here.
What supply chain managers really need is a way to round out these options with something that can go directly point to point doesn’t depend on runways or railways or waterways, is cheaper than flying, but faster than shipping, and can quickly fill in for any of these alternatives when things don’t go quite right. This is where some experts are arguing airships could come in.
Modern airship prototypes have shown promising, being able to carry very heavy loads very efficiently while also being able to deliver those loads point to point without the need to pass anything off to trucks for final delivery. This actually opens up some applications that were even infrastructure limited by roads like supplying remote mining operations, disaster relief in areas that have had transport infrastructure ruined, or maybe even collecting containers of a ship that’s found itself stuck.
Now, governments and companies around the world have invested hundreds of millions of dollars into exploring this concept and capitalizing on potential applications. Maybe this will all go down in smoke as the last attempted air shipping did. Or maybe it might be the next best thing, at least now, you know, to look out for it.