A Ship in a Ditch

On 23 March 2021, a ship turned side­ways. The Ever Given, one of the largest con­tainer ships afloat, was pushed off course in high winds in the south­ern stretch of the Suez Canal and wedged itself diag­o­nally from bank to bank.

For six days nothing passed. Dredgers dug at the bow and tugs pulled at the stern. The ship was refloated on 29 March. By then, accord­ing to the chair­man of the Suez Canal Authority, at least 369 vessels were waiting to transit: con­tainer ships, bulk car­ri­ers, oil tankers and gas car­ri­ers. The indus­try news­pa­per Lloyd's List esti­mated that the block­age was holding up around $9.6 billion of goods a day.

The image was irre­sistible because it made visible some­thing that is nor­mally invis­i­ble. A large share of the world's trade passes through a small number of narrow places, and the prices of things far from those places depend on them staying open.

What a block­age does to a price

It is tempt­ing to draw a straight line from the canal to a shop shelf. The real chain is slower and softer. A block­age first creates a queue. The queue adds days to voyages, and some ships choose to divert around the Cape of Good Hope instead, adding a week or more. Longer voyages tie up ships and con­tain­ers, which reduces how much capac­ity the fleet can offer, which raises freight rates on routes that have nothing to do with the canal. Cargo arrives late and in bunches, and ports at the other end become con­gested weeks after the ship has moved.

Only then does any of this reach the price of goods, and by an amount that depends on how much freight matters to the good. Freight is a large share of the cost of a con­tainer of fur­ni­ture and a small share of the cost of a con­tainer of phones. Retailers with inven­tory absorb some of the shock; those without it pass it on or run out. There is no single pass-through number, and anyone who quotes one is guess­ing.

Narrower places than Suez

The Suez block­age lasted six days. Other choke­points have been dis­rupted for much longer, and in ways that show the same mechan­ics more clearly. From late 2023, attacks on ship­ping near the Bab el-Mandeb strait at the south­ern end of the Red Sea led most con­tainer lines to stop using the route. The Suez Canal Authority reported 13,213 tran­sits in 2024, about half the pre­vi­ous year. Ships went around Africa instead. The canal was open. The route was closed by risk, and the price of that risk showed up in insur­ance pre­mi­ums, voyage times and freight rates.

In 2023 the Panama Canal was closed by weather. A drought lowered Gatun Lake, which feeds the canal's locks, and the canal author­ity cut the maximum draught of ships and the number allowed through each day, from a normal 36 to as few as 22 at the worst point. Transits in the canal's 2024 fiscal year fell 29%. Ship owners bid for scarce transit slots in auc­tions, and some slots sold for mil­lions of dollars, a price for passing through a lock.

The Strait of Hormuz is the one ana­lysts worry about most. The US Energy Information Administration esti­mated that about 20 million barrels a day of oil moved through it in 2024, around a fifth of global con­sump­tion, with limited pipe­line alter­na­tives for most of it. A closure there would not be a queue. It would be a hole in the world's supply, and every oil price on every screen would be repriced against it.

The price of a detour

The alter­na­tive to a choke­point is usually a longer route, and the length is a price that can be read from a map. For a ship between East Asia and north­ern Europe, going around the Cape of Good Hope instead of through Suez adds roughly 3,500 nau­ti­cal miles and ten days or more. Those days cost fuel, crew wages and the charter rate of the ship, and they reduce how many voyages the world's fleet can make in a year, which is why freight rates on routes far from the Red Sea rose when ships began avoid­ing it.

Risk is priced too, sep­a­rately and explic­itly. Ships enter­ing an area under­writ­ers list as high risk pay an addi­tional war risk premium for each voyage, quoted as a share of the value of the hull. After the attacks began, pre­mi­ums for Red Sea tran­sits rose many times over. For a large, valu­able ship, a single passage could carry an insur­ance cost com­pa­ra­ble to the saving on fuel from the short route, and the cal­cu­la­tion that had sent ships through Suez for decades reversed.

Maps are prices

The map on the next two pages is drawn with almost no borders, because polit­i­cal lines explain little here. What matters is where water narrows, what passes through, and what the alter­na­tives cost. Every choke­point is, in effect, a price that the market pays con­tin­u­ously and notices only when it changes: the price of the short route, over the long one.

None of this is new. Merchants have always priced routes: the Cape route replaced over­land spice roads, the Suez Canal made the Cape a detour when it opened in 1869, and the Panama Canal did the same for the long voyage around South America in 1914. What is new is how finely the price is now quoted, by the day, by the voyage and by the risk, and how quickly it reaches screens that have never heard of the strait.

A ship turned side­ways for six days. Nothing on board changed price. The dis­tance around it did.