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The internet has been alive and well with memes, jokes, and jabs about the nearly week-long blockage of the Suez Canal. While comical especially when trying to understand the engineering logistics of dislodging a ship from sand, it has real consequences that will be noticed for months to come. Though the event that transpired has now been managed and the ship in question is on its way after a week of being stuck, this situation brings up a bigger question, “what impact does this have for the industry and what does this mean for the future of trade?”.
Completed in 1869 after being conceptualized by Napoleon Bonaparte seventy years earlier, the Suez Canal extends through Egypt and connects The Red Sea with the Mediterranean. Annually, the canal manages 12 percent of global shipping trade with around 50 cargo ships passing through each day. The primary trade routes served by the canal connect the Middle East, Eastern Africa, and Southwest Asia to Europe and the United States.
While events of impact are known to happen at the Suez Canal, none have had such significant global attention as the blockage over the past week. This is primarily because of the delicate balance of global trade as part of the ongoing economic impacts of the pandemic. The steady increase in trade over the past few months has brought renewed hope to many countries including those in the developing world. So, any challenge to the fluidity of global trade has the chance of derailing the necessary recovery.
During the late 1960s and early 1970s, a blockade of the canal left global trade crippled for years after. Cost of goods from Southern Asia increased and delivery guarantees were all but non-existent.
The canal itself eliminates the need to traverse South Africa between the Indian Ocean and the Atlantic. What would otherwise be a 15,000-mile journey and roughly 2 weeks is cut down to less than a few days thanks to the 119-mile waterway through the desert.
One of the more significant commodities of impact from the recent canal disruption is oil. This is primarily a consideration because any slowdown to the ability to harvest, transport, and refine oil creates massive concerns for other aspects of global trade such as fuel costs. The impact of any slowdown in either oil refinement or oil trade is often most impactful on western nations who rely heavily on the commodity.
Another significant good that is heavily reliant on the canal for timely delivery is wood pulp. Massive shipments of wood pulp are transported through the canal every day. Wood pulp is needed to create most paper-based goods including toilet paper. Some economists predict that another paper goods shortage could be seen in the coming weeks.
The promotional goods industry is often an unintended victim of situations such as the Suez Canal backup. The immediate good news is that our industry in the U.S., for the most part, is not heavily reliant on hard goods being transported through the canal. Textiles that are manufactured in Southern Asian countries such as Bangladesh, India, or Malaysia typically find their way to Eastern Asia or China before entering the U.S. on the West Coast.
Some textile products that are pre-production or ones that are intended to be manufactured or assembled in the U.S. could be impacted in the weeks or months to come. Goods coming to domestic manufacturers which would not typically be shipped through Asia are among the hardest hit. This would primarily include pre-production paper goods and pre-production textiles such as cotton and silk.
The biggest challenge for our industry is going to be the overall slowdown of trade which will take anywhere from three weeks to three months to sort out. As ships finally make their way through the canal, more than a week late, they will be prioritized accordingly by domestic logistics operators. This means that a domestically produced good with no direct connection to Asia or the Suez Canal might still be delayed as shipments are caught up.
There is very little that can be done about such a major impact on global trade as in this very innocent situation. The impacts that we can expect are secondary to the event itself. But, with education and awareness comes understanding. The most notable key to this and other trade events that can and will happen is to practice patience. This will not be the last major hurdle to global trade especially seeing as though trade will only increase in the years to come. But it gives a new understanding of the delicate nature of trade throughout our world.
by Seth Barnett, VP Content Development