Ever Given, the Suez blockage and the impact on African consumer markets

On Tuesday 23rd March, the 400-meter, 224,000-tonne Ever Given container ship ran aground at the south end of the Suez Canal, blocking it completely. As it’s firmly grounded on both banks, efforts to refloat it are underway but it will take time. Some estimates say it will take days. Others say it will take weeks. The blockage could have a global impact.

The backdrop to the Ever Given crisis is that supply chains have already been disrupted as a result of the COVID-19 crisis. The cost of shipping a container from China to Northern Europe has risen from $2,000 per 40ft container to around $8,000 per container now. That higher price has changed little since the start of the year. Overall the global container index has doubled since mid-2020.

The impact of those costs is delayed because a lot of shipping is booked in advance. It may also take products leaving a factory three months to reach the shelves, so cost increases of shipping today will reflect through into on shelf prices in six months’ time.

About 12% of the world trade volume passes through the Suez Canal. At present, around $10bn of trade is being held up every day as a result of the blockage. 5.2m barrels of oil move through the canal each day. More than 3m tonnes of cargo move pass through it each day.

The options for shippers is either to sit out and wait or take ships on a 3000+ mile detour which will add another 10-12 days to the journey time.

There are two major impacts:

  • The cost of oil
  • The cost of goods because of higher freight costs

Ordinarily, one would expect the cost of oil to shoot up with a crisis that stopped the movement of oil tankers through a major trade route from the Middle East. However, with many European countries still in prolonged lockdowns, that impact has been mitigated somewhat. If factories in Europe and the US cannot get supplied from Europe it may stall industrial output, which will also affect demand for oil. But the longer the blockage goes on, the more likely the cost of oil will go up.

Oil traders are already hiring tankers with “just-in-case” options to sail around Africa, which will flow through to oil prices. Ultimately, fears of supply tightness and the knock on effects of tankers being delayed will trump softer demand.

Oil price rises are positive to the economies in Africa that are oil and gas export-dependent, notably Nigeria, Angola, Gabon, Algeria Equatorial Guinea and Cameroon. For the rest, higher oil prices means higher input costs. Even oil exporters are not immune to this – if the cost of factory inputs rise in Europe, for example, so will the cost of goods imported from Europe.

The problem compounds with each day container ships have to wait for the blockage to clear. Vessels that arrive several days late to their destination port can’t be emptied and reloaded in time to make the scheduled return journey. That creates a chain effect that constrains capacity and pushing up freight rates.

For higher value imported products higher freight costs have some impact but it will be minimal. For bulk staples like cooking oils, grains, flour, rice as well as bulkier finished products like margarine or canned food it will have more of an impact. Ultimately this will flow through to food price inflation.

Again, the backdrop to this is the COVID-19 pandemic, during which lockdowns and price rises from supply disruptions have stressed low income consumers. As we have seen in Senegal, notably, this month, when low income consumer spending is stressed, it has the capacity to boil over into civil unrest because it accentuates dissatisfaction with a country’s government and those seen to be connected to it.