Making Waves #4: How the Ever Given grounding shone a light on the world’s maritime choke points

Appearances can be deceiving 🌊

Freshly done with my bachelor’s degree I decided to do like most young graduates with a few months to spare; travel. My first destination? Panama. As a maritime enthusiast I could not miss out on the opportunity to visit the country’s most famous landmark; the Panama Canal. Let’s be honest, this is the reason most visitors come to the country. To be entirely frank with my readers, the experience left me slightly underwhelmed to say the least. Do billions of dollars worth of goods really rely on this simple canal? The locks themselves were only as wide as the length of two London buses, hardly the monument I was expecting!

The Panama Canal however has been defined as one of the most important pieces of infrastructure in the world supporting international trade. It saves precious time to facilitate trade between the Atlantic and Pacific basins, without which ships would have to divert all the way around the Cape of Good Hope. According to the International Finance Corporation, an estimated $270 billion worth of goods crosses the canal every year, loading and discharging across 80 countries. That represents $740 million, every day. If the flow of traffic were to be interrupted the consequences would be disastrous to global flows of goods and energy. Hence, its designation as a key maritime choke point.

Last month it was not the Panama Canal itself that made headlines as a key maritime choke point but another equally important passageway for the world’s goods, especially when it comes to seaborne energy: the Suez Canal.

According to the International Finance Corporation, an estimated $270 billion worth of goods crosses the [Panama] Canal every year, loading and discharging across 80 countries.

Monthly news spotlight: An accident that captured the world’s attention 🟩

During the morning of March 23, the 20,000 TEU container vessel EVER GIVEN was transiting northbound through the Suez Canal, heading towards Rotterdam. TEU stands for twenty-foot equivalent and represents the size of one container, often used as an imperfect measure of cargo capacity. For comparative purposes, at 20,000 TEU the EVER GIVEN is one of the largest container vessels in the world, as long as the height of the Empire State Building. Whilst multiple investigations are still underway to ascertain what happened, it was reported that due to strong winds the captain lost the ability to steer the vessel. The 400-metre-long mega-container vessel had its bow and stern across the canal banks, blocking the waterway for both north- and southbound passages. International efforts to free the ship took 6 days, bringing to a halt more than 350 vessels and costing an estimated $400 million per hour according to Lloyd’s List (yes, hour).

After a number of wishful mis-reports that the ship had been re-floated, the EVER GIVEN was finally tugged away towards the Bitter Lake, a body of water that separates the two sections of the Suez Canal. It remains there to this day as the Suez Canal Authority continues to push its claims for reparations and lawyers and inspectors battling away from the prying eyes of the public. What matters here though is that close to 10% of the world’s seaborne energy supply according to our data at Vortexa was halted from one day to the next. Had the re-floating efforts taken weeks instead of days, the effects may well have cascaded into the price of oil, natural gas and refined products, maybe all the way to how much you pay when you put petrol in your car.

The EVER GIVEN in the Suez Canal

Key maritime choke points 101 💥

The grounding of the EVER GIVEN has done more than shedding a light on how dependent global trade is on the shipping industry. It highlighted how dependent global shipping is on a handful of canals and straits known as choke points. These choke points are under a variety of threats and are closely monitored by shipping market participants.

So what is a choke point? In essence, it represents a maritime lane in the form of a narrow passage between two bodies of land. The caveat here is that it is strategically located between key ports or regions of exports and imports and is vulnerable to a variety of risks. These range from freak accidents such as the most recent Suez Canal event, or simply bad weather which leads to congestion issues or of a geo-political nature such as conflict. Let’s look at a few examples, by no means an exhaustive list of all canals and straits, and the risks they face:

1. Panama Canal: fog, lake water levels susceptible to floods, congestion
2. Suez Canal: groundings, geo-politics
3. Strait of Hormuz: conflict, geo-politics
4. Strait of Malacca: collisions, congestion
5. Cape of Good Hope: seasonal weather

The main choke points in the shipping world, especially for seaborne energy flows can be seen on the following map:

A map of maritime choke points and associated flows according to Vortexa

For each of the above canals or straits, I’ve aggregated seaborne oil and gas flows, passing through each of them and assessed what percentage of global flows this represents. If you’d like access to this kind of data or anything else along these lines, drop me a message or check out our platform through our webpage here. Though some volumes evidently pass through multiple choke points we can clearly see how significant an impact it would have if only one of these flows were to be stopped indefinitely! All of the above face different risks. The Strait of Hormuz and the Strait of Malacca are at risk due to geopolitical sensitivities and pirate attacks, respectively. The Suez and Panama canals may face greater risks arising from its infrastructure or local weather such as flooding and fog.

“The Strait of Hormuz and the Strait of Malacca are at risk due to geopolitical sensitivities and pirate attacks, respectively. The Suez and Panama canals may face greater risks arising from its infrastructure or local weather such as flooding and fog.”

To summarise 🤓

The recent halt of traffic through the Suez Canal has shone a light on the most vulnerable aspects of our supply chains and allowed a better understanding of the risks the maritime industry faces in terms of disruption. We seem to be witnessing a reversal of decades worth of global cooperation. Tensions seem to spread in areas neighbouring existing maritime choke points with a potential negative effect on international trade. Future maritime choke points might include the Bering Strait as the Arctic ice melts and the route becomes an increasingly busy artery for commercial shipping. Though this might not be obvious, the first victim of any conflict arising in proximity to the discussed maritime choke points would be the shipping industry as a whole. 

We’ve clearly identified the problem but do solutions exist? If you have any suggestions feel free to type them out in the comments sections! My short answer is, it’s complicated. The Nicaragua Canal is one example of such a failed project, with billions poured into the construction of an alternative to the Panama Canal only for the project to be put on indefinite hold in 2017 following loss of funds. The Suez Canal expansion of 2015 allowed potential capacity in-transit to double but as we saw this was of no use if a ship was stuck on the wrong part of the canal and could still put in jeopardy the crossing of all boat traffic. 

As I type these words reports have emerged of the interception of a booby-trapped boat in the Red Sea aimed at a Saudi Arabia-flagged refined products tanker. This follows further reports of a drone strike on a crude oil tanker a mere three days prior in the Strait of Hormuz. Both of these incidents highlight an increase in such attacks. Commercial shipping’s involvement in regions of geo-political conflict has unfortunately put a target on it’s back, one that will remain for the foreseeable future.

Cartoon of the month: “Canals Under Threat” - Courtesy of Sheridan Hart

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About Arthur Richier

Arthur is a Senior Freight Analyst for Vortexa based in London. Prior to this he was on the freight pricing desk at S&P Global Platts, covering dirty and clean tanker markets.

As part of the conversation around freight markets, and their impact from energy markets to our everyday lives he has been lucky to contribute to Bloomberg, TradeWinds, Al-Jazeera, Tanker Shipping & Trade (part of Riviera Maritime Media), Ship & Bunker, The Moscow Times, The Business Times (Singapore), The Houston Chronicle and Gulf News among others.

In his spare time he sits on the board of the Shipping Professional Network of London, where he aims to bring together young professionals from all aspects of the shipping industry to network, socialise and learn more about the industry he proudly forms part of.