Unless you have spent this week quarantining or staycating with no wi-fi, you will have seen that the Suez Canal became blocked when the 20,000 TEU “Ever Given” container ship, leased by Taiwan’s Evergreen from Japan’s Shoei Kisen, turned broadside in a sandstorm, ran aground and blocked the canal. The ship is 400 m long and the canal is 300 m wide. A temporary work around has been put in place for smaller ships using a stretch of old canal and the ship has now been partially refloated but the consequences are intriguing.
(The “Ever Given” is the maximum length permitted by the Suez canal and is too big to fit though the Panama canal. Launched in 2018, it already had form in that, a year later, it badly damaged a ferry in Hamburg.)
When it opened in 1869, the canal was an early example of project finance whereby lenders’ recourse for repayment is limited to the assets of a project rather than to those of its sponsors. Other early examples included voyages by Dutch and English explorers in the 17th Century and the Trans – Siberian railway in 1891, in fact the first project financing may have been silver mines in Devon in 1299.
A feature of infrastructure especially prized by owners is when it can charge monopolistic prices. The canal saves 15 days’ sailing 7,000 km around the Cape of Good Hope. In 2019, 18,000+ ships carrying some $1.1 trillion of cargo accounting for 12% of global trade traversed the canal, generating revenues for Egypt of $5.8 billion. So interrupting this cash cow gets expensive.
The canal was closed in 1956 – 7 and again in 1967 – 75 for political reasons / war but surprisingly, this is the first time in 150 years that it has been blocked by an accident such as this. (Mind y
ou, plenty of supposed 1 in 100 events have been happening much more frequently than that recently). Is this, therefore, what Nassim Taleb would call a Black Swan event, one that no one saw coming (in that no one realised that swans could be black until someone went to Western Australia)? The phrase usually refers to bad news even though discovering the swans in Perth was surely a surprise that was a pleasant one. But there is a difference between an event happening that no one had conceived of and one that had been identified but whose likelihood of occurrence was considered remote. A fundamental precept of risk analysis ahead of a project financing (or of any sophisticated investing), be it on behalf of investors, lenders or insurers, is that it should identify all possible future outcomes and each outcome’s implications for each party to the project. As such, a blockage such as this would have been foreseeable even though it had never happened.
Today, the canal is no longer project financed and many of these risks, whether they can be mitigated at sensible 
cost or not, are no doubt borne by the government – so cue excitement in the contract law and insurance industries: how much is the shipping line’s obligation to the government? What is the extent of cover for the ship / for the canal? Are missed deadlines or goods that perish on other ships included? How will this interruption impact capacity in ports further afield? And more.
Whooper and Mute Swans are winter visitors to contemporary Egypt; statues of swans, covered in black resin or bitumen, have been discovered in the country’s ancient burial chambers. At 224,000 tonnes, is this the biggest Black Swan ever? It’s tempting to think so but no, it isn’t.
As a postscript, the Canal Authority has decided against changing its logo (is that a Z or a ship stuck amidships?) …
