Commentary

By Lars Jensen

The extension of the current supply chain leads to a “ loss ” of cargo , whereas the shortening will lead to “ extra ” cargo .

Vessels returning to the Suez en masse during peak season could overload ports in Europe and on the US East Coast . MartinLueke / Shutterstock . com

The Red Sea crisis is still in full flow , and all supply chain stakeholders are busy trying to adjust to the around-Africa reality , at least for the short to medium term .

But this is where stakeholders need to think further ahead to mitigate an otherwise entirely predictable problem . When the major carriers return to the Suez Canal , this may lead to an overload of port and hinterland infrastructure both in Europe and on the US East Coast .

The extension of the current supply chain leads to a “ loss ” of cargo , whereas the shortening will lead to “ extra ” cargo . This is best illustrated with a hypothetical example .

A vessel departs China every week going to Germany , and every week , a vessel arrives in Germany . Suddenly , those ships need to go around southern Africa , and they are all delayed by one week . The vessels up to , for example , week five all arrive on time but the vessels that were supposed to arrive in week six and onward are all one week delayed .

That means no vessel arrival in week six , followed by one vessel per week from week seven onward . Because there is no ship in week six , that cargo is “ lost ,” the effect of suddenly lengthening the supply chain .

This is — extremely simplified — what we have seen unfold in the past month .

But once the Suez is back to normal , the opposite will happen . Vessels are arriving weekly on their around-Africa voyages . Suddenly , the vessel that was supposed to arrive in week 12 ends up arriving in week 11 together with the around-Africa vessel that was also planned for week 11 . This means there is an “ extra ” week ’ s worth of cargo in week 11 . This is the effect of shortening the supply chain .

Once Suez traffic returns , we will see this effect on a large scale , especially if all carriers do it at the same time . We last saw this in 2021 , when the Suez blockage was lifted , which led to a surge of cargo arriving at the same time in European ports , creating congestion problems .

Back then , the effect was slightly less pronounced as the canal was only closed for six days . This time , given the volume of diversions around southern Africa and how long they ’ ve occurred , it will be much more severe .

In the case of North Europe , the delay is seven to nine days , which means we first “ lose ” seven to nine days of cargo . Then we get an additional seven to nine days with double the usual volume . Even worse is the eastern part of the Mediterranean , where the around-Africa routing is up to 14 days longer than usual . In that case , we can expect two weeks of double volume as the supply chain contracts .

On the US East Coast , the impact is only five to six days and only on the part of the cargo not going via the Panama Canal , hence the effect is slightly smaller .

Potential surge

From the perspective of managing this domino effect , it would be best if the Suez routing became viable again two to three weeks after Lunar New Year . This means that the doubling of weekly flow becomes significantly reduced as the “ extra ” cargo will only be the lower post-Lunar New Year volume . The redirection should ideally happen when the Lunar New Year peak volume is on vessels too far down towards South Africa to be redirected .

The worst would be if carriers switch back to the Suez in the middle of the peak season in July – September . In that case , ports and hinterland infrastructure would be inundated with a weekly load twice the normal peak load . And on the US East Coast , this could even coincide with the risk of labor disruptions .

If we see the current situation from the perspective of preventing extreme congestion in the port and hinterland infrastructure , we should , ideally , see the Red Sea situation get to a point where the passage begins to experience normal traffic in late February .

If , on the other hand , we get into the summer period , it would be prudent to either not switch back to the Suez until after China ’ s Golden Week in October , or only very gradually over a period of a couple of months . Failure to do one of these during the peak season would lead to a very high risk of port congestion problems .

email : lars . jensen @ vespucci-maritime . com

44 Journal of Commerce | February 12 , 2024 www . joc . com