Will American Car Dealers Be Affected by the Suez Canal Crisis?

The grounding of mega-carrier Ever Given in the Suez Canal this week has halted traffic through one of the world’s busiest waterways — and the crisis threatens to compound the problems facing an industry already struggling to overcome supply chain issues.

The Taiwanese-owned ship, capable of carrying up to 20,000 individual cargo containers, ran aground March 23 and shipping experts warn it could take “weeks” before it is freed up. The grounding brought traffic through the Suez Canal to a halt, including a number of car carriers as well as cargo vessels and tankers carrying auto parts and raw materials.

The crisis comes at a particularly bad time, automakers worldwide already facing shortages of critical semiconductors and petroleum-based materials like seat foam. That has led to numerous plant closures in recent weeks, a situation that the canal crisis could worsen, experts warn. In turn, consumers could be looking at both higher prices and shortages of some popular products if the canal can’t reopen soon.

A supply chain ready to snap

Suez Canal authorities are literally attempting to dig out the massive ship.

“It only takes a shortage of one part to mess things up,” said Kristen Dziczek, the vice president of research for the Center for Automotive Research, or CAR, in Ann Arbor, Michigan.

The Suez Canal, which opened in 1869, serves as a passage between the Mediterranean and Red seas. Since it cuts about 10 days off the time needed to sail around Africa’s southern tip, it is the major cargo route between Europe and the Far East.

Last year, the canal handled about 19,000 ships, or more than 51 a day, according to the Suez Canal Authority. Shipping journal Lloyd’s List puts the total daily value of traffic through the canal at $9.6 billion — $5.1 billion heading west, another $4.5 billion heading east.

Ships are already piling up on either side of the canal waiting for salvage crews to free the Ever Given. That includes two large auto transport vessels, the Morning Star and the Hoegh London, prepared to make the transit, according to European website Car Dealer. Several other car carriers were en route. The situation also has forced petro tankers and cargo carriers hauling auto parts to lay in wait.

An auto industry in crisis

There have been separate issues at the Port of Long Beach, above, and Los Angeles causing problems for automakers. (Photo credit: Port of Long Beach)

For the auto industry, the crisis is primarily impacting automakers and auto buyers in Europe and the Far East. A Kia spokesman said the firm is monitoring the situation and is “aware of delays.” Other manufacturers, including Mazda, BMW and Volkswagen, said they are in good shape for now, but whether that holds could depend upon the length of time it takes to free the Ever Given.

The global automotive supply chain is sensitive, particularly now, since it largely operates on a just-in-time basis, with factories maintaining as little inventory as possible. So, “Any slight delay in delivery could mean the production lines in Europe will grind to a halt,” said Tom Barnard, editor of Electrifying.com.

But the longer the crisis continues the greater the risk to other regions of the world. If European assembly lines are forced to close, it could lead to shortages of European vehicles at U.S. dealerships. And American assembly lines could begin to face shortages of European-made parts and components.

Bad timing

More shutdowns could be on the plan if authorities are unable to refloat the Ever Given.

Ever Given’s grounding couldn’t have come at a worse time for an industry still struggling to recover from the COVID pandemic. Plants around the world were forced to close at various times. Dealer inventories in the U.S. are running about 1 million vehicles lower than normal for this time of year, according to J.D. Power.

Efforts to rebuild those inventories had already hit a series of speedbumps, including shortages of the semiconductor circuits now used in every modern automobile. Virtually every manufacturer has now been hit. Ford and General Motors are among the manufacturers who have had to idle plants or slow production lines in recent weks.

Making matters worse, petroleum-based materials, such as seating foam, have also gone into short supply. And, if that’s not enough, there have been pandemic-related problems at some of the country’s biggest ports, including those in Los Angeles and Long Beach, California, forcing further delays in the delivery of vehicles, as well as auto parts and components.

Salvage effort could take weeks

Efforts to free the Ever Given have so far failed and “We can’t exclude it might take weeks, depending on the situation,” Peter Berdowski, CEO of Boskali, the Netherlands-based  company leading salvage efforts, told Dutch television, according to Reuters.

The longer it takes to get the mega-carrier afloat the greater the risk of serious problems for the auto industry worldwide.

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Source: Auto Industry Could Take on Water Due to Suez Canal Crisis