Happy New Year!

We hope it’s filled with prosperity, specifically you quitting your corporate job because you made it big in short-form video.

We’re covering the commerce implications behind the Suez Canal disruption. It’s short and sweet today.

TL;DR: Houthis are disrupting the Suez Canal in response to Israel’s bombardment of Gaza. It’s having a major impact on trade routes, specifically from Europe to Asia.

The Suez Blockade: 4 questions

If you didn’t care to read about it in the news, the visual is down below.

Instead of European/Chinese ships using the Suez as a major cheat code, they have to sail around South Africa.

How long does this new route take? Good question. It adds about 6k miles and 3-4 extra weeks to make delivery. That means more fuel, more money, and way more time (obviously). Ocean freight prices for this month are 3x compared to the last few months.

1. What’s the size/scope of this disruption?

1. Ships passing through the Suez account for about 10% of ALL global trade in a year. That’s the market cap of 8-ish Walmarts (3.2 Trillion).
   

2. ~19,000 ships pass through the Suez every year, and a lot of them carry commodities like oil, which is going to have a bigger than average impact on global energy prices.
   

3. We’re not seeing a direct effect on prices…yet, because stocks have been built up for the holiday season, etc.

2. Who is this going to affect?

1. All of Europe. All of Asia. We’re looking at price upticks in energy and all sorts of goods, which could result in an uptick in inflation across the affected regions.

2. And, we feel like we’ve answered this already, but it’s not going to have a huge impact on the U.S.
   
   Why? Ships don’t have to go through the Suez to reach America.

3. Does this compare to what happened in Covid?

Yes and no.

We’re speculating at this point, but during Covid you had supply reductions AND demand increases.

The disruption in the Suez has had an adverse effect on supply, not demand. So we might not see prices rise to the levels we saw during the pandemic.

Ryan Peterson has an excellent explanation of this entire event.

4. What’s an effect we haven’t talked about?

Great question again!

Egypt is getting absolutely rocked. The country collects a crap ton of transit fees from the canal. Their economy is already under stress. This disruption only leads to more pressure on leadership there.

Again, none of this is investment advice.

What AI Made This Week

Sick Fits by Ahmed

By popular demand, the segment all of you wanted. (Okay it was 1 of you and then 2 people reinforced it by emailing the inbox)

This is an all-time fit. Jon Hamm broke through all the US Open content with this incredibly casual-yet-polished getup.

mrlukehodges

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Have a great week!

Ahmed and Peter