How painful will the blockage of the Suez Canal hurt the world economy?

'The ship, the boxes, the cargo, all in the wrong place! In recent days, workers at every link in the global supply chain have uttered similar exclamation s.

A heavy container ship, about 400 meters long and flying the Panamanian flag, has been stuck in the Suez Canal since Wednesday local time, leaving more than 300 ships waiting to pass through. The blockage of the Suez Canal, one of the world's most important shipping lanes, has "stuck in the throat" of global supply chains.

How painful will the blockage of the Suez Canal hurt the world economy? This depends on how far the canal is dredged, but also on how vulnerable the global supply chain is to the impact of COVID-19.

The rescue team created the account "Suez Canal Diggers" on social media. The account description says: "Try my best, but can't guarantee anything." This reflects the ongoing uncertainty surrounding dredging operations, even in the hope that the tide will rise high enough to lift the stranded ship.

Figures show that about 15 percent of the world's cargo traffic by sea passes through the Suez Canal. Lars Jensen, chief executive of the Danish Shipping Intelligence consultancy, said about 30 heavy cargo ships pass through the Suez Canal every day, and a single day of congestion means 55,000 containers are delayed. Allianz, the German insurance giant, estimates that the blockage of the Suez Canal could cost global trade between $6 billion and $10 billion a week.

The Suez Canal operator said cargo ships could choose to wait or sail around the Cape of Good Hope at the southern tip of Africa. However, at present, no ships choose to circumnavigate. Waiting, unsure of when it will pass, and paying extra costs every day; But a detour would mean weeks of extra flight and associated costs.

Due to the high dependence on the Suez Canal shipping channel, the European market has clearly felt the inconvenience caused by the logistics disruption. A number of European home and appliance retailers have said that goods are blocked in the canal, which will cause delays in delivery. If the situation persists, it could lead to higher prices.

It's not just retailing that's hurting, it's manufacturing, too. According to Moody's, a ratings agency, European manufacturers, especially car-parts suppliers, have been using "just-in-time inventory management" to maximise capital efficiency rather than hoarding raw materials. In this case, if the logistics is disrupted, the production may be disrupted.

Under the impact of the epidemic, the retail and manufacturing industries were originally the industries that suffered a great loss. As the economy gradually recovers, these industries are just beginning to recover, especially when consumers need to improve their living conditions at home, which brings a "dawn" to the retail industry, but the blockage of the canal has made it difficult for retailers to make money for a while.

Not only that, but if the blockage continues and a large number of cargo ships are unable to turn around, it will surely lead to higher shipping rates and increase the cost of global trade, with a knock-on effect. Since the second half of last year, the international shipping market has been affected by container shortage, trade recovery and other factors, the shipping capacity has been very tight, shipping prices have been at a high level. The blockage of the Suez Canal would add salt to the wound of the shipping market.

At the same time, shipping delays will also generate a flood of insurance claims, putting pressure on financial institutions involved in Marine insurance and potentially triggering turbulence in areas such as reinsurance.

There is also concern that oil and other commodity prices could spike as the Suez Canal is blocked. International oil prices have risen significantly in recent days. Light crude for May delivery on the New York Mercantile Exchange and Brent crude for May delivery in London both traded above $60 a barrel.

However, oil prices have risen as a result of growing supply chain concerns, industry insiders said. But tighter measures in Europe to cope with the new outbreak will still damp demand for crude oil, and transportation channels in oil-producing countries such as the United States remain unaffected, limiting the upside for oil prices, industry insiders said.

Some experts say the Suez Canal blockage has added to the already severe impact of the epidemic on global trade. At the same time, the incident also reminds global trade that it should not rely too much on sea transportation and not "put all eggs in one basket". It is important to promote the construction of land-based logistics systems such as China-Europe freight train. In addition, the logistics gap caused by the canal blockage may lead the manufacturing industry to change the current system of inventory of raw materials and increase "inventory" to avoid a similar situation.