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Supplies to Asia may be disrupted due to Suez Canal incident, says Ong Ye Kung


SINGAPORE - Supplies to Singapore and the region may be temporarily disrupted, said Transport Minister Ong Ye Kung on Thursday (March 25), after one of the world's largest container ships got stuck in the Suez Canal, blocking traffic along the critical waterway.

Should the disruption in supplies happen, some drawdown on existing inventories will become necessary, Mr Ong wrote in a Facebook post.

The alternative is for ships coming from Europe and the Middle East to sail around the Cape of Good Hope, located at the southern tip of the African continent, to get to Asia, he added. But this is a longer journey that will take one to two more weeks.

"If the disruption is prolonged, PSA may see schedule disruptions when shipping lines re-route their journeys. It will have to plan ahead and ensure that operations remain smooth," Mr Ong said. PSA is a Singapore-based global port operator.

Tugs and diggers have so far failed to dislodge the 400m-long, 224,000-tonne Ever Given after it ran aground on Tuesday. The ship had lost the ability to steer amid high winds and a dust storm, said the Suez Canal Authority, and the effort to reopen the canal could take several days.

Comparing the Suez Canal, which provides passage for around 10 per cent of all global seaborne trade, with the Straits of Malacca and Singapore, which cater to a third of that trade, Mr Ong said the two waterways are closely connected and link up Europe, Middle East and Asia.

"To have the Suez blocked is akin to a big tree falling across the CTE (Central Expressway). Every other expressway linked to the CTE will be affected," he said.

"This is another unfortunate incident that illustrates how the world is now so closely interwoven together," he added.

Observers say the blockage will have knock-on effects on global supply chains already strained by the Covid-19 pandemic.

The average Singaporean could continue to face inconveniences such as products being unavailable or longer shipping times, but consumer prices are not likely to rise much, they say.

Freight charges only make up a fraction of the price of goods, so even if rates go up and it is passed on, consumers may not notice, said Dr Yap Wei Yim, head of Singapore University of Social Sciences' (SUSS) international trade management minor programme.

There is also no reason for another panic run to the supermarkets for items like toilet paper, he said, noting that they are sourced from Asia and do not come through the Suez Canal.

Singapore Shipping Association executive director Michael Phoon said businesses and consumers in Asia and the Mediterranean can expect delays on all cargo shipments coming through the Suez Canal.

He said shipping firms will need to decide whether to wait for the salvage and refloating operations at the canal to be complete, or re-route and sail around Africa. "Whatever the decision, it will incur additional time and costs."

S&P Global Platts' head of global demand and Asia analytics, Mr Kang Wu, does not expect the blockage to last more than a few days. He said it is unlikely that freight for crude and refined oil products will be incentivised to make the long trip around Africa.

SUSS' Dr Yap said disruptions caused by the Suez Canal jam will cascade through container trading networks around the world.

While container ships and oil tankers are key users of the canal, its shipping traffic also includes car carriers and bulk carriers. Hence, the blockage is expected to have an impact on other sectors as well.

It will also likely prolong an ongoing global shortage of shipping containers, which has been driving up shipping charges. "Hours into the incident, we saw freight rates strengthening again," Dr Yap said.

With shipping firms increasing capacity and China racing to produce more containers, there was optimism the shortage could be resolved in the middle of the year.

But the Suez Canal blockage is now likely to aggravate existing bottlenecks and cause even more disruptions, not only for the container trade but for other commodities dependent on the busy waterway.

"Satellite pictures already show how quickly ship traffic is piling up," said Dr Yap. "Unless supply issues are sufficiently addressed, we will see the container shortage situation extending well into the second half of 2021 and even 2022."

The backlog caused by the Suez Canal blockage could also create some challenges in the short term for some of the hub ports, Dr Yap added. "Ships that are late and on time might come at about the same window and the ports may not have enough berths."

To mitigate the current situation, National University of Singapore Business School's Associate Professor Goh Puay Guan said shipping lines have to increase capacity where possible, and ports need to clear their throughputs and prevent bottlenecks.

Firms could also explore alternative freight options, including other sea routes, and overland transport such as rail or trucks, or purchase from other sources of supply.

Said Prof Goh: "It is probably a temporary imbalance, because when demand came back, parts of the supply chain were not ready to cope with this. This has been exacerbated by the Suez Canal accident.

"In the short to medium term, it will be very painful as companies try to adjust. Eventually an equilibrium will be found as the bottlenecks start to clear."

Supplies to Asia may be disrupted due to Suez Canal incident, says Ong Ye Kung

Published : March 26, 2021

By : Kok Yufeng The Straits Times/ANN