Government designs a ‘Four Point Plan’ to deal with Suez Canal Blockage

Blockage of Suez Canal since March 23, 2021 is seriously hitting the global trade. This route is used for Indian exports/imports worth US $ 200 Bn to/from North America, South America and Europe.
Government designs a ‘Four Point Plan’ to deal with Suez Canal Blockage

In a bid to deal with the situation arising from the blockage of Suez Canal, the government has chalked out a ‘Four-Point Plan’. The plan was chalked out in a meeting convened by the Logistics Division, Department of Commerce, Government of India today.  The meeting was chaired by Pawan Agarwal, Special Secretary-Logistics and attended by the Ministry of Ports, Shipping and Waterways, ADG Shipping, Container Shipping Lines Association (CSLA) and Federation of Indian Export Organisations (FIEO).This plan includes –

  • Prioritisation of cargo: FIEO, MPEDA and APEDA will jointly identify cargo particularly perishable cargo for priority movement and work with the shipping lines for the same.
  • Freight Rates: CSLA assured that the freight rates as per existing contracts will be honoured. A request has been made to the shipping lines to maintain stability in freight rates during the period of this crisis.  It was noted that the situation is temporary and is unlikely to have a long-lasting impact.
  • Advisory to Ports: Once the blockage is over, it is expected that some bunching may take place, especially at the ports of JNPT, Mundra and Hazira. Ministry of Ports, Shipping and waterway assured to issue an advisory to these ports so as to gear up arrangements and ensure efficient handling during the forthcoming busy period.
  • Re-routing decisions: Shipping lines were advised through CSLA to explore the option of re-routing of ships via the Cape of Good Hope. It was pointed that such re-routing usually takes 15 additional days’ time.

Blockage of Suez Canal since March 23, 2021 is seriously hitting the global trade. This route is used for Indian exports/imports worth US $ 200 Bn to/from North America, South America and Europe. It includes petroleum goods, organic chemicals, iron & steel, automobile, machinery, textiles & carpets, handicrafts including furniture, leather goods, etc.
The vessels that are calling in India will not be affected as much at least in the short term. However, owing to the giant backlog, vessels carrying Indian export cargo that are east to west bound, heading from Asia to Europe will face delays. In case of importers, the majority of it comes from China and the far-east, but a significant amount of high value cargo such as high tech machinery etc. comes from Germany, Italy, USA and other western countries are also expected to be impacted with their deliveries getting delayed.
The Suez Canal itself operates at a fairly high degree of efficiency and it takes a certain amount of time for a vessel to cross it. “In case of a backlog as large as this, even if they operate at a 100 per cent efficiency, the backlog will continue to for an extended period, the domino effect of which is expected to sustain for the medium term,” said Bhatia.
The domino effect
Sharing future insights, he said, “While exports won't be affected much in March, the impact may get considerably evident by May-June as we will have to wait and see how shipping lines respond to this challenge. Right now, it is a very fluid situation, however the knock on effects of this could be quite sizable, similar to how we are still dealing with the after effects of the pandemic lockdowns.”
Sanjay Bhatia, Co-founder, Freightwalla believed, “Indian export trade is generally west bound. Whilst cargo deliveries will be delayed both ways, Indian exporters operating on a payment against delivery model will be impacted in particular as this cohort of exporters will have to combat working capital crunch at least in the short to medium term.”
It was noted in the meeting that over 200 vessels are waiting on the North and South sides of the Suez Canal and about 60 vessels are getting added to the queue daily. If two more days are taken before the efforts result in clearance of the canal (digging on both sides, extra barges being added on every high tide, tugboats, etc. to straighten the stuck vessel), the total backlog created would be about 350 vessels. It is estimated that this backlog should take about a week’s time to clear out.  It was decided in the meeting to closely monitor the situation.

Share post:

Related Stories