On one hand, the blockage of the Suez Canal by the EverGreen ship is quite comical and absurd, not to mention the birth of a thousand memes. However, it's certainly going to have major impacts on the global economy that may not be apparent until a couple of months.

And, this is taking place during a time when the world is already grappling with supply chain disruptions due to the coronavirus, while there is strong demand for goods as the economy reopens. Currently, it's estimated that the blockage is holding up ships that pass through the canal that carry around $10 billion worth of goods on a daily basis.

Background

The Suez Canal is a man-made passage that was created to allow for the shipment of goods from Asia to Europe and North America. Without this, ships have to sail around Africa which costs an estimated $300,000 per day and leads to slower shipping times. An estimated 10% of global trade passes through the canal.

Another contributing factor is that tankers have been super-sized over the past decade. For example, the stuck ship is a quarter-mile long with 200,000 tons onboard of all sorts of items including oil, petroleum products, livestock, electronics, durable goods, etc.

Efforts are ongoing to dislodge the ship, but there has been little progress. Some believe the ship may have to be unloaded of cargo which is another laborious and time-intensive process especially given its location. Others believe that the ship has to be unloaded and then blown up.

Impact on the Global Economy

Other than sailing around Africa, there is no other path for goods to travel from Asia to Europe. So, many believe that we will see disruptions in production for items including cotton, petroleum, apparel, plastics, and auto parts.

There will be less impact on the U.S. given that it can receive goods via the West Coast, however, there will certainly be some second and third-order effects for many companies. Of course, these disruptions are even more consequential as many companies now operate on a just-in-time inventory basis which works well when supply chains and trade is flowing smoothly.

The blockage could also lead to upwards pressure on prices for energy and energy products, so it's likely that Europe could see higher gasoline prices as they rely on the Suez Canal for oil imports.