Compensation for Suez Canal: How Ukraine, China, Russia won from Ever Given accident

Author : Georgiy Kuhaleyshvili

Source : 112 Ukraine

The Egyptian government agency - the Suez Canal Administration - has been suing the Japanese company Shoei Kisen Kaisha, the owner of one of the world's largest container ships, Ever Given, for more than two months, which blocked traffic on the shipping route for six days in March 2021. The ship turned across in a gust of wind, and it ran aground, resting stern and bow on both banks of the canal. Ever Given will remain under arrest until the shipowner compensates for the damage. Shoei Kisen Kaisha offered to pay $ 150 million, but the Suez Canal Administration initially pushed for $ 916 million and then reduced requests to $ 550 million
09:21, 2 June 2021

Open source

By the decision of the court, the parties were given time to agree on the amount of compensation. Egypt's astronomical appetites are related to the fact that the Ever Given accident caused global negative economic consequences, forcing transport companies to rethink the supply chains using the Suez Canal. The strategically important shipping artery requires modernization. Ukraine, China, and Russia can benefit from this situation.

Related: More than 320 ships queue to pass through Suez Canal

Global traffic collapse

The whole drama of the Ever Given accident is that in the six days of the congestion in the Suez Canal, losses to the world economy amounted to $ 57.6 billion (400 million per hour), according to Lloyd's List. Owners of 450 vessels that have accumulated at the mouth of the canal, operators of sea containers (there were 18 thousand containers on board Ever Given alone), cargo owners, and consignees lost too much money due to this force majeure. Every day 50 ships pass through the Suez Canal, some of which carry up to 1 million barrels of oil, which is equivalent to 10-12% of world trade. Due to the six-day congestion, the growth rate of world trade decreased by 0.4%, the cost of renting some vessels increased by 47%, and Brent and WTI crude oil futures increased by 5%.

The Ever Given accident called into question the feasibility of building giant ships with a capacity of 20,000 containers. According to UNCTAD, from 2006 to 2020, the volume of construction of supercontainer ships in the world increased by 155%. A total of 13 container ships of the same class as Ever Given were launched under the project of the Japanese shipbuilding company Imabari Shipbuilding. Their length is about 400 m, width - 59 m, height - 342 m, and their carrying capacity exceeds 219 thousand tons. Each of these container ships is the size of 4 football fields, 1.5 times larger than the Titanic, by 100 m taller than the Eiffel Tower. Such a vessel could again get stuck somewhere, in the Suez or Panama Canals, in the Strait of Hormuz or Singapore, provoke colossal losses. Similar incidents have already happened in the Suez Canal in 1990-2020, and the 1967 "Six Day War" between Israel and a coalition of Arab states led by Egypt put it out of action for 8 years.

By the way, this is not the limit for shipbuilding geniuses. Captain Ragul Hannah, who works for the consulting firm Allianz Global Corporate & Specialty, estimates that modern technology will soon be able to launch larger vessels with a capacity of 50,000 containers. In March 2021, the Taiwanese shipping company Evergreen Marine Corporation placed an order for the construction of 20 supercontainer ships at the shipyards of the South Korean engineering holding Samsung Heavy Industries. The cost of one such vessel is from 115 to 130 million dollars.

Related: Ship blocking Suez Canal moved, unclear when it will refloat

The Ever Given incident forced the Egyptian authorities to develop a new plan to expand the Suez Canal by 30-40 meters in certain sections. In 2014-2015, Cairo spent $ 8.5 billion on the construction of the second channel of the canal to ensure two-way traffic of ships. Egypt receives more than $ 5.5 billion a year from the operation of the Suez Canal. To relieve the sea communications, transport companies are interested in alternative routes.

Eurasian projects of China and Russia

Despite the fact that Russia and China are in difficult relations with the EU and the United States, they are under sanctions, European companies do not work with them in the field of rail transportation of containers from Asia to Europe. This is facilitated by the search for alternatives to the Suez Canal in connection with the risks associated with the movement of supercontainer ships in the canals and straits.

The Ever Given accident in the Suez Canal has played into the hands of China, which is developing container routes to Europe under the New Silk Road project (part of the Belt and Road Initiative). The initiative is perceived in the West as a tool for China's economic expansion and strengthening the debt dependence of individual countries to influence their political decisions. Nevertheless, in 2020, 878 thousand containers were transported along the routes of the "New Silk Road". For comparison, in 2010, 6.9 thousand containers were transported between China and Europe by rail.

Today, 204 container trains a week run between the German port of Hamburg and the industrial centers of China. In April 2021, the Zhengzhou - Hamburg container train began to run through the territory of Kazakhstan, Russia, Belarus, and Poland. Such a train can deliver 44 containers in 15 days. In May 2021, a train began to run, capable of transporting 94 containers in 18 days, from the Chinese city of Xuzhou to the port of Hamburg through Mongolia, Russia, Belarus, Poland.

Russia is working to expand the Trans-Siberian and Baikal-Amur Mainlines (Eastern Range) in order to intensify trade with China, Japan, South Korea and reduce its dependence on the European market. At the same time, the Russian Federation is trying to increase the EU's dependence on the transit of goods from these countries through its territory. Moscow wants to reorient as much freight traffic as possible and enhance its role as a link between Europe and Asia.

After the incident with the ship Ever Given, European companies have increased their interest in the delivery of goods from the Far East through the territory of Russia. In April, the Danish shipping company and container operator Maersk proposed a rail route from the Vostochny sea terminal in the Pacific Ocean to the port of Novorossiysk using the Trans-Siberian Railway. Delivery of goods along this route is 25-30 days. The Finnish transport company Nurminen Logistics, together with the Russian company RZD-Logistics, organized a container train to deliver goods from Finland to Japan.

Related: Container ship stranded in Suez Canal re-floated

Moscow and Beijing will definitely not be able to offer the world a land-based alternative to the Suez Canal. The "New Silk Road" is of secondary importance. Rail transport is not an alternative to shipping. No container train will be able to transport as many containers at a time as a ship. Shipping is cheaper by sea. It is more profitable for suppliers of large consignments of metal, grain, various raw materials to ship in ports for export to non-CIS countries. Rail can compete with maritime transport for door-to-door groupage, where goods are transported without transshipment from origin to destination. The main advantage of the railway is the speed of delivery of goods.

What did Ukraine get?

Ukraine has become one of the forks for container trains from China to Europe since 2020. There are two transit routes through our territory: China - Mongolia - Russia - Ukraine - Hungary / Slovakia and China - Kazakhstan - Russia - Ukraine - Slovakia / Hungary / Poland. In 2020, at least 50 trains crossed Ukraine, which transported about 5 thousand containers. Also last year, 17 container trains arrived from Central and Northeastern China to the Center to the logistics complex Liski (Ukrzaliznytsia) on the China-Ukraine route.

These traffic volumes are insignificant, but they will grow. It is expected that by 2030 the volume of container traffic on the routes of the "New Silk Road" will triple. The transit of goods through Ukraine is interesting to China due to the developed railway infrastructure and the geographical location of the country near the borders of the EU and the Eurasian Economic Union.

Questionable sea routes

There is an old shipping route from Asia to Europe through the passage between the Atlantic and Indian Oceans, between the South African Cape of Good Hope and Antarctica. Some captains led their ships along it during the congestion in the Suez Canal. This wire was actively used until the restoration of the Suez Canal in 1869, including the famous Portuguese navigators Vasco da Gama, who laid the sea route from Europe to India, Fernand Magellan, who traveled around the world. The route began to be used frequently again in 1967-1975 when the Suez Canal was partially destroyed after the Six Day War.

A significant disadvantage is that the delivery of goods along the route past the Cape of Good Hope is two weeks longer than along the Suez Canal. In addition, there are security risks. Recently, piracy has been rampant in the Gulf of Guinea (West Africa). In December 2020, pirates hijacked the Stevia with six Ukrainian sailors on board.

Related: Suez Canal traffic jam caused by stuck Ever Given cleared

As an alternative, Russia is promoting the Northern Sea Route, along which a ship from the Chinese port of Daolian to Rotterdam can reach in 35 days, while on the shipping route through the Suez Canal, the period will be 48 days. Thanks to global warming and the melting of the Arctic ice, the navigation period along this route has increased from the end of May to January. In the 90s, shipping lasted from August to September. The Kremlin plans to achieve year-round navigation on the Northern Sea using icebreakers and increase the annual traffic volume to 80 million tons by 2024.

The Northern Sea Route raises the interest of global players in the mineral-rich Arctic, which has become an arena of geopolitical competition. The United States has deployed strategic bombers in Norway, while Russia is building military facilities and investing in the development of port and rail infrastructure in the Arctic. China is promoting the Northern Sea Route as the offshore offshoot of the "new Silk Road". Yet the route is not very popular in international shipping. If 18 thousand ships pass through the Suez Canal a year, then only 100 ships pass along the Northern Sea Route, and it is mainly used for coastal shipping and the development of the Arctic.

The main disadvantage is climatic risks. Icebergs and large ice floes can damage the ship's hull. Year-round use of the route for supercontainer ships with a width of 60 m is impossible since icebreakers at best can pave a 32 m track for Panamax class vessels with a capacity of 5.1 thousand containers. In addition, the Northern Sea Route justifies itself only for the transportation of goods from North China, Japan, and South Korea to Europe. If you carry goods from South China, Hong Kong, or Taiwan, then the difference in distance between the route through the Suez Canal is not significant.

There are few alternatives to the Suez Canal, and they all have weak points.

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