In international trade we often speak of tariff and non-tariff barriers. Tariffs are the duties imposed on goods when entering a new country/market and are usually the first barriers eliminated in free trade pacts. The non-tariff barriers – increasingly called technical barriers to trade – exist in a variety of forms and often continue to block exports to a new market long after the actual tariffs have fallen to zero. These issues are increasingly a problem in today’s global economy. From safety regulations to sanitary and phytosanitary measures, these barriers affect a range of products including food, automotive parts and components, machinery and other goods. Last week we saw a new barrier emerge that halted a significant portion of global commerce.
We’re talking of course about the Ever Given, the massive Japanese-owned container ship that got stuck in the Suez Canal late last week and effectively blocked one of the most important shipping routes in the world.
According to the iconic shipping journal Lloyd’s List, which began publishing in 1734 (yes, you read that right), now that the Ever Given has been refloated, attention will quickly turn to assigning blame and recovering costs for the six-day blockage of the Suez Canal. They report that marine insurers believe claims will run into the hundreds of millions of dollars.
Lloyd’s List estimates the blockage cost $400 million an hour and values the canal’s westbound traffic at $5.1 billion a day, and eastbound traffic at $4.5 billion a day. With $60 billion in costs, no wonder insurers are bracing, and industry watchers are eying things closely.
The old adage “time is money” couldn’t be more true when it comes to the marine shipping industry where even a few hours of sailing time is considered precious. This is precisely the value of the Suez Canal which separates Africa from Asia and moves over 10% of all global trade including precious energy exports such as crude and refined oil and liquefied natural gas, as well as consumer products such as clothing, machine and equipment, manufacturing inputs, bulk cargo such as steel and natural resources and auto parts.
Without the Canal open, ships are forced to travel around the horn of Africa which can add nearly 10 days of extra sailing time. Last Sunday, Lloyd’s List estimated that nearly 400 ships were stalled waiting to transit the Canal at the end of last week. In short, this was a huge disruption for global trade and for the global economy. And despite the fact the Canal is set to resume normal activity, we haven’t heard the last of the Ever Given or of who is going to be ultimately held responsible.
Throughout Covid-19, the WTO and other international organizations have sounded the alarm over creeping protectionism while urging governments to keep highly integrated supply chains functioning. This has been good advice.
Yet, in focusing on the levers and tools governments and policy-makers wield, we have forgotten the key role logistics and transportation play in the global economy and how these impact the competitive advantage of businesses. Over the past week we’ve learned we cannot take these things for granted. In the end, someone is paying the freight and if their costs go up so do everyone else’s.