In March 2021, the skyscraper-sized Japanese Cargo ship Ever Given wedged across Egypt’s Suez Canal. The vessel kept the world’s one of the busiest trade routes blocked for six consecutive days. The Blockage of the Suez Canal had become a major global headache as it caused widespread economic ramifications. The Suez Canal is a 193 km long artificial sea-level waterway located in Egypt. It serves as a critical shipping artery providing an avenue for vessels to pass between Europe and the Middle East and Asia. The trade route connects the Red Sea with the Mediterranean Sea.
The Panama-registered cargo ship, Ever Given, is owned by a Japanese shipbuilding company – Imabari Shipbuilding. It is operated by a Taiwanese transport company Evergreen Marine. The vessel was on its way to Rotterdam in the Netherlands from Tanjung Pelepas in Malaysia. One of the largest ships globally, Ever Given is around 400 m long and 59 m wide. It has a capacity to carry more than 20,000 containers of 20-ft height. According to the official statement by Evergreen Marine, the vessel, while passing through the canal on 23rd March 2021, was caught in a sandstorm. The strong winds eventually resulted in the loss of the ability to steer the vessel, causing the hull to deviate. As a result, both the ends of the hull of the ship struck the opposite banks of the canal by a huge amount of force owing to the large momentum of the massive vessel (weighing around 2 lakh tonnes), thereby blocking the canal and causing a long queue of around 400 vessels waiting to cross the canal. Six days after, on 29th March 2021, the salvage crews from the Suez Canal Authority (Egyptian government owned authority which owns the Suez Canal and is in charge of its operation and maintenance) and Dutch company Royal Boskalis Westminster were able to free the stranded vessel and move it to the Great Bitter Lake for inspection.
Impact of the Blockage
The blockage of the Suez Canal caused widespread economic ramifications as this critical trade route between Europe, Asia and the Middle East nearly accounts for 12% of the global trade. According to Lloyd’s List Intelligence vessel-tracking data, the canal witnesses $9 billion worth of goods to pass through it every day. Hence, due to the blockage, the roughly estimated loss for six days was approximately $54 billion. The extent of economic damage actually suffered by different countries across the globe would be much greater when costs like commodity prices, additional shipping operation charges and shipping delays are factored in. Over and above the global trade loss, the impact of the blockage of the Suez Canal felt on several businesses ranging from shipping operators to manufacturers to e-commerce retailers. Due to the delay of shipments, huge losses had to be borne by a large group of retailers engaged in different industries, including cotton from India for clothes, petroleum from the Middle East for plastics and fuel, and auto parts from China as there are no other alternative mode of transportation (such as by rails or roads).
Oil prices are also expected to increase in Europe, as nearly 1.9 million oil barrels approximate to nearly 7% of all seaborne oil pass through the canal daily. The most affected regions will be the Middle East, Asia and Europe. The impact on America will be comparatively less as most of the shipment from Asia goes to the West Coast. However, imports from Europe may be affected due to the delay of shipments. Additionally, the Suez Canal blockage impeded the empty shipping containers in returning to Asia for reloading, thereby adding to the shortage of containers caused by the rising demand for consumer goods owing to the COVID-19 pandemic.
Consequently, the logjam created additional problems for the global supply chain which is already under pressure from the pandemic-related trade restrictions and a surge in buying.
History of the Suez Canal
Construction of the canal
The first efforts to build a modern canal connecting the Mediterranean Sea and the Red Sea came during the expedition of Napoleon Bonaparte in Egypt and Syria in and around 1798. However, wartime fragmentary survey measurements conducted by his engineers incorrectly showed that the Red Sea was 8.5 m (28 ft) above the Mediterranean. Therefore, to operate such a waterway, locks were essential, or else waters from the Red Sea would completely flood the Nile Delta. Since the construction of those locks would be costly and time-consuming, Napoleon abandoned constructing the canal.
In 1833, a group of French intellectuals called the Saint-Simonianists arrived in Cairo. They became interested in the Suez Canal project. One of their leaders, Barthélemy Prosper Enfantin tried to draw the attention of Muhammad Ali, an Albanian Ottoman governor and the de facto ruler of Egypt, towards the project. However, unfortunately, Ali showed little interest in the project. Consequently, the Saint-Simonianists returned to Paris and formed an association of experts in 1846 to study the feasibility of the Suez Canal.
A year later, in 1847, surveys conducted by Adrien Bourdaloue, one of their experts, confirmed that there was no difference in the elevation levels between the Mediterranean Sea and the Red Sea. Followingly, Linant de Bellefonds, the chief engineer of Egypt’s Public Works drew a technical report highlighting Bourdaloue’s works. However, due to lack of interest from Muhammad Ali’s part on one side and fear of Britain, on the other side, that opening a canal for everyone would bring in interference between its trade with India, the project could not be started.
In 1854, Ferdinand de Lesseps, the French vice-consul in Alexandria, obtained a concession from Sa’id Pasha, the Khedive of Sudan and Egypt, to form a company to construct a canal that will be open to ships of all nations. Additionally, the concession also granted the company the authority to operate the canal for 99 years from its inception. Accordingly, de Lesseps first convened a commission by the name International Commission for the piercing of the isthmus of Suez in 1855, consisting of 13 experts from seven European nations. The objective of the commission was to examine the plans of a canal connecting the Mediterranean and the Red Sea, as developed by Linant de Bellefonds. After examining, its next objective was to advise on and ascertain the feasibility of such a waterway and finally determine the best route for the waterway. After extensive surveys and analysis, the commission submitted its report in 1856. The report contained a detailed description of the canal and provided detailed technical plans for constructing the canal. After receiving the commission’s unanimous report, Ferdinand de Lesseps formed The Suez Canal Company (Compagnie universelle du canal maritime de Suez) in 1858 for construction and operation of the canal, based on the stipulations of the Khedive’s concession as was granted to de Lesseps.
However, the ambitious project was vehemently opposed by the British government right from the outset to its completion. Britain opposed it as it did not want to lose the status quo of controlling both the Cape route and the Overland route to India and the Far East. They presumed that the canal might undermine their maritime and commercial supremacy. Lord Palmerston, the then Prime Minister of the United Kingdom, clearly voiced his opposition towards the project in diplomatic circles. Even without hiding the true intention behind his opposition and he confessed that “Britain’s commercial and maritime relations would be overthrown by the opening of a new route, open to all nations, and thus deprive his country of its present exclusive advantages”.
As the international forums were initially very sceptical regarding the project, the Suez Canal Company encountered a lot of difficulty selling their shares in the international market. Consequently, a significant number of shares remained unsold as major economies like Britain, Austria and Russia did not buy them.
The company, however, was able to successfully promote its shares and bonds in France and some other European economies with the assistance of the Cattaui banking family and James de Rothschild. It was largely due to their assistance that shares and bonds were successfully promoted and sold in France and other parts of Europe.
Work on the construction of the canal convened on 25th April 1859. Ferdinand de Lesseps gave the first symbolic swing of the pickaxe to mark the beginning of the construction on the shores of what is known today as Port Said. The entire excavation took nearly ten years and forced labour (corvée), consisting of more than 1.5 million people from various countries, were employed in the construction work. Some sources alleged that cholera and other epidemics were rampant among the labourers resulting in hundreds of deaths.
In November 1869, the canal opened under the supremacy of the French authorities. Opening ceremonies were conducted at Port Said, with great pomp and show which included fireworks, illumination and a banquet on the yacht of the Khedive Isma’il Pasha. Many royal and international dignitaries were on the guestlist for the ceremony, including the Austrian Emperor Franz Joseph I, the French Empress Eugenie, the Crown Prince of Prussia, Prince Louis of Hesse, American natural historian H. W. Harkness etc. among many others.
Shortly after the inauguration HMS Newport (a gun vessel operated by the British Royal Navy) surveyed the canal and prepared a nautical chart. S.S. Dido, an Anchor line ship, became the first ship to traverse the canal from South to North.
Initial Operational Complexities
Shortly after opening the Canal for international use, the Suez Canal Company ran into financial difficulties because of low traffic and construction expenditures. The cost incurred was more than twice the original estimate.
De Lesseps made attempts to increase the revenue by interpreting the kind of net ton referred to in the concession of the Khedive, as “ meaning a ship’s cargo capacity and not only the theoretical net tonnage of the “Moorsom System” introduced in Britain by the Merchant Shipping Act in 1854”.
In December 1873, The International Commission of Constantinople established a specific kind of net tonnage in its protocol, thereby settling the question of tariffs raised by the international community due to de Lesseps interpretation of the net tonnage. This was the genesis of the Suez Canal Net Tonnage and the Suez Canal Special Tonnage Certificate, which are in use even today.
Growth and Reorganization of the Canal
There was an immediate and dramatic impact on global trade as soon as the canal was opened. Along with the American transcontinental railroad, which was already constructed and under operation before the inauguration of the canal, it allowed global transit in record time.
It was mainly the European Mediterranean countries that greatly benefited from the Suez Cana as they got a faster transit route to Asia and East Africa. The canal provided them a competitive advantage over some of the major North and West European maritime trading nations, including Britain, Netherlands, Germany, etc. Among the European Mediterranean trading nations, Austria-Hungary benefited the most. An Austrian maritime trading company, Österreichischer Lloyd, the largest maritime trading company in Austria, experienced rapid and large-scale expansion after the completion of the Suez Canal. Trieste, a port city, presently located in Italy but was under the possession of Austria, also experienced huge expansion after the Suez Canal was completed.
Concomitantly, several other international ramifications occurred after the canal was inaugurated. The outset of the canal played a vital role in increasing the colonization of Africa by Europe.
Initially, Britain suffered huge economic losses because of the canal. Before the canal was constructed, goods from the far east (which included trading nations primarily belonging to the east and southeast Asia and Russia) were carried by vessels around the Cape of Good Hope. The goods were first stored in British warehouses from where they were reexported to continental Europe. However, after the commencement of activities through the canal, a technical pitfall came to light. As the winds from the Mediterranean Sea blew from west to east direction, the vessels were unable to adapt themselves to sail through the Suez Canal. Subsequently, the British entrepôt trade suffered greatly. Since the British had also invested in the construction of the canal despite having initial reservations about it, the less traffic through the Suez Canal resulted in a major trade slump, bankruptcies, unemployment throughout Britain.
Parallelly, the economic downturn was also suffered by Egypt due to the low traffic of the canal (which was also exacerbated by local rebellions and corruption). Isma’il Pasha, was forced to sell most of his shares of the canal to the British government to pay back his bank debts. Local unrest in Egypt in the form of the Urabi Revolt resulted in the British invasion in 1882. Inevitably, they usurped full control of Egypt (although nominally Egypt remained a part of the Ottoman Empire). In 1888, the Convention of Constantinople was signed, by United Kingdom, Germany, Austria-Hungary, Spain, France, Italy, the Netherlands, the Russian Empire and the Ottoman Empire, which declared the canal as a neutral zone under British protection.
Evelyn Baring, the 1st Earl of Cromer, was the British representative in Egypt from 1883 to 1907. He played a critical role in reorganizing the Egyptian government, suppressing local rebellions (on account of the Urabi Revolt) and corruption. Besides, he was also successful in increasing the traffic on the canal as well.
In 1936, a treaty was signed between the United Kingdom and Egypt. Under this Anglo-Egyptian treaty, “the United Kingdom was required to withdraw all its troops from Egypt, except those necessary to protect the Suez Canal and its surroundings.”
In September 1945, the Egyptian government demanded a modification of the treaty to terminate all British military influence in Egypt. Subsequently, under the Anglo–Egyptian Agreement of 1954 United Kingdom decided to withdraw all its troops from Egypt. The Egyptian government at that time was led by Colonel Gamal Abdel Nasser. The withdrawal of troops was finally completed in June 1956.
The Suez Crisis and Aftermath
The Egyptian arms deal with USSR in 1955 and the diplomatic recognition of the People’s Republic of China by Egypt led to an abrupt withdrawal of the United States and the United Kingdom from an offer to finance the building of the Aswan Dam across the Nile river. Thus, in order to finance the construction of the Aswan Dam, Egyptian President Gamal Abdel Nasser nationalized the Suez Canal in July 1956 and transferred the control of the canal to a newly formed Egyptian state-owned Authority, the Suez Canal Authority that replaced the earlier Suez Canal Company. But since the nationalization move was technically in violation of the Anglo–Egyptian Agreement of 1954, the antagonized United Kingdom colluded with Israel and France through a secret political and military agreement, The Protocol of Sèvres, to overthrow the Nasser led Egyptian government and thus the Suez Crisis ensued.
The attack began with the Israeli invasion of the Sinai Peninsula in October 1956. Britain and France joined in the invasion later on. To prevent further escalation, Lester B. Pearson, who was the Canadian Secretary of State for External Affairs, proposed the creation of the first United Nations peacekeeping force to ensure the withdrawal of the Israeli forces from the Sinai Peninsula and also to ensure the access to the canal for all. The proposal was accepted in 1956 by the UN members.
Following intense pressure from the USSR and the US, the British and the French forces were withdrawn from Egypt in December 1956 and Israelis forces in March 1957. The United Nations Emergency forces(UNEF) were stationed in Sinai to prevent any future conflict.
However, when in 1967, the Egyptian government ordered the UNEF to move out from the Sinai and reoccupied it militarily. It was followed by a Six-Day War between Israel and Egypt. In the end, Israel occupied the entire Sinai peninsula, including the east bank of the Suez canal. Subsequently, the Egyptian army imposed a blockade on the Suez Canal to prevent Israel from using it. The canal remained closed after that till 1975, before it was reopened by the then Egyptian President Anwar Sadat. Israel withdrew its forces following the Egypt–Israel peace treaty signed in 1979.
Significance of Suez Canal to Global Trade
The Suez Canal is one of the world’s busiest maritime channels between the East and the West. Nearly 30% of all container ships of the world pass through the Suez. According to data obtained from the Suez Canal Authority, nearly 19000 ships with a net tonnage of 1.17 billion tonnes passed through the canal in the year 2020. It denotes that almost 12% of all global trade passes through the canal. One significant strategic advantage that the canal manifests is that it allows the shipping vessels from Asia to avoid a long trip around the Southern tip of Africa to reach Europe.
Issues with the Suez Canal
Despite providing a strategic advantage to the global trade, the canal also presents a few issues to the ships crossing it.
Firstly, the vessels are under constant threat of confronting pirates attack around the regions of Somalia and the Gulf of Aden. This security threat has increased the insurance fees for vessels transiting the region along with the operating costs, which typically amount to no less than $100,000 per transit.
Secondly, there is the issue of the finite capacity of the Suez to accommodate the vessel traffic. The single lane character of the canal continues to be a major constraint to the number of vessels passing through the canal per day as it prevents the vessels from sailing in both directions. It remains a critical unresolved issue especially during the peak hours of the transit.
Remedial measures and Way forward
The New Suez Canal Project
The New Suez Canal is an artificial waterway project in Egypt under the Suez Canal Corridor Area Project. Under this project, a new shipping passage has been created parallel to the original Suez Canal. It provides a second shipping lane in the existing canal and allows the shipping vessels to sail in both directions of the canal. The New Canal was inaugurated in 2014 and opened for commercial use in 2015 and is expected to decrease the transit time from 11 hours to 3 hours. Simultaneously, it also increases the capacity of the Suez canal from the present capacity of 49 ships a day to about 97 ships a day. The Suez Canal Authority estimates that the new canal will help increase the annual revenue from the canal from the present $ 5 billion to $ 12.5 billion.
The Northern Sea Route
The Northern Sea Route is “a set of all-water shipping lanes between the Atlantic Ocean and the Pacific Ocean along the Russian coast of Siberia and the Far East”.
Presently, this route remains unfavourable for the purpose of commercial shipping activities as most of the route lies within the Arctic waters, where ice breaker vehicles will be necessary to carry out maritime activities. Moreover, this route also passes through the Exclusive Economic Zone of Russia. However, this route may serve as a viable alternative sea route between Europe and Asia in the future as there are possibilities of ice cap reductions owing to the increasing global temperatures.