Lessons from Suez

In the geekier part of the payments’ world, standards are a big thing and the standards geeks that inhabit this important territory tend to hold the shipping container in high regard. But even if the humble container is a shining triumph of standardisation, it isn’t obvious that there are lessons for the payments world to take from a stranded containership. Bear with us.

It took the best part of a week, a multi-national army of experts and a flotilla of tug boats, support vessels, diggers and dredgers to free the Ever Given. Japan-owned, but registered in Panama, the ship had come from China and was bound for the Netherlands; its operator was Taiwanese, and its all-Indian crew was overseen by Egyptian pilots. Its cargo was likely every bit as multi-national.

The Suez Canal is 193 km long and carries 19,000 ships per year or an average of 51.5 ships a day; collectively, they transport as much as 12% of global trade. All big numbers, so little surprise that the unfortunate vessel’s grounding triggered a global media storm and a Twitter frenzy – not to mention a lockdown-cheering inundation of comic asides.

But life without the Suez Canal is not impossible. The Canal wasn’t opened until the mid 19th Century, and it has been closed several times since – not least for an eight-year period following the six-day war in 1967. There was far less international trade going on back then, but the Suez Canal is still substitutable. Instead, ships can travel round the Cape of Good Hope – albeit in a voyage that presents the not insignificant risk of piracy as well, as the challenging combination of fierce winds and rocky outcrops.

More quantifiably there is time and distance to consider. The Cape Route can involve a third more nautical miles than the Canal and at least the same proportionate increase in time. Professors James Feyrer (Dartmouth College) and John Quiggan (Queensland) have helpfully put these time and distance elements in an economic context. Feyrer estimates that a 10% increase in shipping distances translates into a 5% reduction in trade which in turn leads to GDP losses of 25% that sum. Writing in The Guardian, Quiggan put the closure’s cost to the UK at around 0.06% of GDP, France’s at 0.03%. Not nearly as much, he rightly pointed out, as the cost of Covid.

But it isn’t just containers and their vessels that make trade happen, payments do. A blockage in the payment pipes would be a whole lot less photogenic and a good deal more challenging for the comedians amongst us to make amusing jokes out of. It wouldn’t take a 400 metre long golden-class vessel carrying 20,000 odd containers to block the pipes – indeed Visa’s European outage in 2018 was caused by a (not so simple) switch at a data center, the CHAPS outage in 2014 by a humble update.

It also wouldn’t (and in those two cases presumably didn’t) require suction-dredgers and tug-boats to sort out a problem with the payments pipes. But it does require battalions of central banks, brigades of bankers and – depending on the cause – troops of technicians and contingents of cyber experts.

Photogenic or not, problems in the payment pipes can have similar consequences to the skirmish in Suez. They can be every bit as international in impact and require just as much multilateral involvement in their remedy. Which is why it’s just as well there’s folk out there like the Bank for International Settlements (BIS) considering the What Ifs on the payment pipes, testing the plumbing, and working on resiliency tests and recovery plans. It’s also why the payment pipes are every bit as politically charged as geographical chokepoints – think the Straits of Gibraltar, Malacca or Hormuz, the Panama Canal, or indeed Suez itself. Control the payment pipes and you can control the payments, but the pipes have to work fast and reliably and be affordable and accessible, or people will find workarounds.

Today the Cape Route is the workaround to the Suez Canal, but back in the mid 19th Century the Canal was the workaround to the Cape. The British who claimed maritime and commercial supremacy at the time were at best lukewarm to the French plan to build the Canal and at worst outright opposed to its construction. Probably suspicious about the Canal’s potential for propelling France’s growing influence in the region, they would have been equally concerned about the its interference with Britain’s hegemony. But the Canal was built, the ships they sailed, the Cape Route abandoned and the rest is history.

There’s at least one lesson for payments in all that.