Suez Canal blockage does not affect Egypt's B2 stable ratings: Moody's

CAIRO - 28 March 2021: Moody’s Rating Agency expected that the blockage of the Suez Canal will not affect Egypt’s B2 stable balance of payments from a sovereign perspective.

The Agency noted in a report that the Suez Canal represented almost 2 percent of Egypt’s GDP on average pre-pandemic, providing a significant contribution to total current account receipts.

“While declining to 1.3 percent of GDP during the acute phase of the pandemic, Suez Canal receipts have proven more resilient than other cross-border services, such as travel receipts,” Moody’s said, “A temporary disruption will not materially change our expectation of a return to pre-crisis canal receipts as global trade recovers.” 

It added that the temporary closure of the canal could affect around 10-15 percent of global container output, depending on how global and regional volume is calculated.

According to the report, although global supply chain delays would normally not be a big issue, high consumer and industrial demand, a global shortage of container capacity, and low service reliability from global container shipping companies are already causing long delays. This has made supply chains highly vulnerable to even the smallest of external shocks. In that context, the timing of this event could not have been worse.

“Ships that were about to enter the canal will soon need to decide whether to turn back and use the alternative, longer route around the Cape of Good Hope,” Moody’s added, “That would add around 10 days to their journey compared with the main route that includes the Suez Canal.” 

However, it pointed out that the effect of delays on individual sectors is hard to quantify because of the uncertainty on how long the canal will be blocked.

The agency believed that Europe’s manufacturing industry and auto industry, including auto suppliers, will be most affected. 

It explained that this is because they operate “just-in-time” supply chains, meaning they do not stockpile parts, and only have enough on hand for a short period, and source components from Asian manufacturers.

 “Even if the situation is resolved quickly, port congestion and further delays to an already constrained supply chain are inevitable,” it stated, adding that alternative modes of transportation are more or less out of the question, because airfreight capacity is already tight owing to the COVID-19 pandemic, and rail transportation between China and Europe is very limited.”

The EVER GIVEN ship, 400 meters long and 59 meters wide, has 18,300 containers onboard with a capacity of 224,000 tons ran aground due to bad weather and sandstorm and wedged diagonally across the canal at 151km of the canal, where vessels pass through from both directions. Being stranded at this point, the ship resulted in the suspension of the international maritime trade through the canal since March 25, 2021.

The number of the ships awaiting in the Suez Canal blocked by the vessel that ran aground has reached 321 vessels, and that the authority is providing them all logistic services they need, Lieutenant General Rabie said.